Supply Chain Forecasting Methods You Should Know!


When we say forecasting, weather forecasting comes to mind for most people. We are very acquainted with the term, thanks to years of suit-clad weather forecasters gracing our breakfast time every morning. 

Just like the weather, forecasting is undeniably a significant part of the supply chain process. And just like weather forecasting, it refers to predicting upcoming business changes based on old data. 

Supply chain forecasting helps businesses estimate their sales and product performance and use that data to plan their supply chain smartly. When you can predict your supply chain, you can shape your production based on available products, manage inventory, and ensure availability.  

You can maximize your revenue while minimizing the losses in the supply chain. In the long run, it enables you to maintain a positive experience for your customers, enhance brand presence, and increase your credibility.    

What are forecasting methods? 

Forecasting methods are techniques used to estimate demand in the future based on your past sales, experts’ opinions, and more. There are multiple forecasting methods used by professionals, depending on their needs.  

They are essentially divided into two types – the quantitative and the qualitative methods. Where quantitative methods are objective and create forecasts based on data, qualitative methods are subject and rely on personal insights and observations.  

Quantitative Forecasting 

Quantitative forecasting is data-driven and based on facts. It is an unbiased process that utilizes historical data and analysis to create forecasts. They are based on mathematical models and calculations and are useful for short-term forecasts.  

Here are a few quantitative forecasting techniques given below. 

  • Naive Approach 

The naive approach relies on considering the past period’s actual sales as the forecasted sales for the coming period. It doesn’t account for any major variable that affects your demand. You can use a seasonal approach where you consider the actual sales from the same season or period from the last year as the forecast for the coming period. For example, you can use your past year’s October sales as the forecast for the October sales of the current or coming year.  

  • Moving Average 

In the moving averages method, you take the average of sales in past periods as the forecast for the coming period; say you use the sales data for the first four months to forecast demand for the fifth month, then the data from month 2 to 5 to forecast demand for the sixth month and so on. With time, as you remove old values and introduce new ones, you can move the average, hence the name. This method isn’t accurate and only useful for inventory control for low-volume since it doesn’t consider recent data’s significance in forecasting demand. 

  • Exponential Smoothing 

This method is similar to moving average, but takes a more weighted approach, adding significance to demand-altering parameters. The method focuses on recent data more while also considering old data. It is beneficial for short-term forecasting, but lags in successfully predicting future trends. Due to its reliance on historical data, it might predict demand patterns similar to the past or current ones. It also doesn’t account for seasonality during forecasting. 

  • Trend Projection 

Trend projection helps you successfully predict repetitive or seasonal trends by using your past sales data. It enables you to establish the relationship between various variables that affect demand. But it requires a large amount of long-term data to identify a pattern and properly analyze it. The method assumes that past trends will continue to be relevant and likely repeat themselves. But in reality, past data may not be apt to create a forecast for the future. 

  • Regression Analysis 

Regression analysis helps you establish a relationship between the independent and dependent variables that affect your demand. It helps you better understand your future demand based on the variables that affect them. You can add as many variables as you want to the equation. But typically, this method works best when few variables are involved, and any correlation between independent variables can affect your forecasts. 

Qualitative Forecasting 

A few significant qualitative forecasting techniques are discussed below.  

  • Executive Opinion 

The executive opinion method relies on the expertise of executive-level professionals to generate a forecast. The method is easy to perform and requires industry experts to form a collective opinion on how likely demand is to change. But it is highly subjective, relies majorly on the personal insights of the experts involved, and is found to have only poor to fair accuracy. 

  • Delphi Method 

Similar to the last method, the Delphi method also involves expert insights to generate a forecast. But, here, the forecasts are reviewed and discussed amongst the experts until they reach a common consensus. To avoid bias, personal insights are collected anonymously. It involves multiple discussions and is one of the most reliable qualitative forecasting methods available. But the process can be extremely cumbersome and time-consuming for the experts as well as the observer. 

  • Market Research 

Market research is extremely useful for businesses without historical data or during a new product launch. It uses competitor analysis, consumer surveys, polls, and questionnaires to create future forecasts. It gathers information to understand consumer expectations, bottlenecks, and potential issues to help you cater to your audience. Though useful, this method can be expensive, time-consuming, and can only target a small audience due to a lack of respondents. 

  • Historical Analysis 

This method suggests that new products would have a similar sales pattern to old ones. You can use sales data from your products or similar products from the competitors. Though it’s a good forecasting method for the long term, it won’t help you forecast trends or sales for the short term.  

  • Sales Force Estimates  

This method relies on the experience of salespeople to forecast demand based on the trends they’ve noticed in the sales over time. The process is simple and requires an estimate based on experience and expectations. The method has fair accuracy and is useful for short-term forecasting. But it requires managerial judgment to be useful, and human bias can affect the forecast accuracy.

How to find the best fit? 

Both quantitative and qualitative forecasting methods play a significant role in accurate forecasting. The ideal way is to use both moderately, but the methods differ according to your business goals. The best way to do that is to use demand planning software. It uses both qualitative and quantitative methods to give you precise demand forecasts for your business.  

TransImpact provides one of the best demand planning software in the market. It uses 250+ forecasting algorithms to give you accurate forecasts for up to five years. It uses historical data, competitor analysis, seasonality, trend analysis, market analysis, and more to ensure all demand-altering factors are considered. A thorough what-if analysis ensures that your business is prepared for any situation.  

Get in touch to learn how to optimize your supply chain with our software. 

How Much Should You Charge for Shipping and Handling?

How Much Should You Charge for Shipping and Handing

The advent of eCommerce businesses and online stores has revolutionized the shopping experience. The eCommerce industry has shown immense potential and daunting growth right from the start. This growth peaked during the pandemic as most people were stuck at home. But this growth comes with challenges, and although a thriving industry, eCommerce businesses face cutthroat competition. Smaller businesses struggle to compete with giants like Amazon, offering the lowest prices and same-day deliveries. 

The plight of most eCommerce businesses is determining the correct shipping and handling or delivery charge for their orders because even if a customer likes your product and pricing, they might not complete their order due to high shipping costs. But charging less than necessary or providing free delivery on all products can make you lose money. The secret is to strike the right balance between the two and determine the charges that are necessary but not unreasonable for the shopper.  

What do shipping and handling mean? 

Shipping and handling often refer to the process of packaging and safely delivering orders to customers. Some businesses employ an in-house team for this purpose, while others rely on third-party service providers.  

What are the shipping and handling fees? 

Shipping and handling costs are the charges per order and include costs associated with an order’s packaging and delivery, often added during the order completion process. This includes logistics, labor, packing supplies, inventory storage, transportation, and delivery costs. Though used together, shipping and handling are different. 

Shipping fees refer to the postage, logistics, and delivery cost related to the transportation of the order from the shipment center to delivery. This includes fuel prices, transport surcharges, and other delivery-related charges. Handling charges are the costs associated with the storage, packaging, and loading orders for shipment, and include the costs of packaging materials, labor invested, warehousing, etc. 

How much should I charge for delivery? 

The delivery process involves three areas of cost – handling, packaging, and shipping. By accurately calculating all three costs, you can determine how you should charge for delivery. 

  • Handling 

Your handling costs are majorly dependent on your hourly labor charges.  

A simple way to calculate your handling costs is by using the following formula –  

(Average number of minutes needed to package an item/60) x your hourly rate.) 

Let’s assume you pay your workforce Rs. 300 per hour per person, and it takes them around 15 minutes to pack an order, then the handling cost will be around Rs. 75 for the package.  

This is an oversimplified method, often useful for SMEs to determine their handling costs. Though it can be difficult to calculate the exact handling costs for every product, you can categorize your orders based on size and then determine an estimated handling cost for each.  

  • Packaging 

Good packaging materials can be costly, but they’re also necessary to deliver orders. Boxes, labels, and materials like bubble wrap can cost you a lot. It can be difficult to accurately determine the amount of packaging materials required for every order. One easy method to determine the total monthly cost of all packaging products is to, take an average, according to package sizes and add that amount to every product. 

To reduce your packaging costs, you can opt for smarter packing techniques, like choosing padded envelopes or small boxes wherever possible, requiring fewer packaging materials than larger boxes. 

  • Shipping  

Shipping costs involve logistics and transportation fees for every order that varies according to the order’s dimensions, weight, and delivery location. While shipping, lighter but bigger products can often be adjusted for their dimensional weight as they occupy greater space while transporting. Using effective packaging methods can help reduce shipping costs significantly. Also, as the delivery location changes, the shipping fees will also change.  

Factors to consider for your shipping charges 

Though it can be tempting to charge the same delivery amount for all packages, it isn’t a fair transaction for you or your customers. Let’s say you charge a constant Rs. 150 for all package deliveries. In that case, you might lose money on your shipment for large packages that need to be delivered farther away. Similarly, customers buying smaller packages might find the fees excessive for their order and end up buying from your competitors.  

We suggest you determine the delivery charges based on the order to ensure your costs are considered, and the customer pays a reasonable price for their package.  

A few factors to consider while determining delivery costs include –  

  • Business Size 

Small businesses or startups with low order volume often don’t need to lease a warehouse for storage or an extensive workforce. By preferring in-house storage, you can save a lot on inventory costs and labor and thus provide cheaper delivery to your customers.  

  • Competition 

It’s always good to look at your competitors when deciding on the right product delivery cost. As far as possible, try to keep your delivery charges similar or lower than your competitors. It will act as an add-on for your customers while ordering your products. 

  • Faster Delivery 

For small businesses, it can be difficult to cope with the same-day and one-day delivery standards set by giants like Amazon. But still, you must try and find a fast and affordable shipping option for your packages so they reach your customers on time. You can also introduce a ‘rush-delivery’ option on your checkout and charge more for it. So, the customers requiring products urgently can get them, and you don’t have to pay extra for that delivery.  

  • Charging Per Package 

As we mentioned, there is no one-size-fits-all approach to delivery charges. As the dimensions and weights for your packages change, so will your costs. Your shipment cost changes as per your weight and dimensional weight. Also, bigger packages need more packing materials for safe delivery. So, set charges for different ranges of products based on their weight and dimensions.   

  • Location Constraint 

ECommerce businesses often need to deliver to far-off locations, which can be difficult for smaller businesses with a single centralized inventory. Your shipping charge will increase as per your delivery location. Initially, we would suggest raising delivery prices per distance. But for mid-size businesses with considerable order flow, it is better to set up smaller inventories in various locations depending on where you receive most orders. 

  • Customs & Taxes 

Customs and tax rules can change drastically for international shipping. When sending your parcels abroad, you can add an extra charge to delivery based on the import and export laws in the country of delivery and mention the same on your invoice. This might raise your delivery charge, but your customers will not have to deal with it on their own. But this might be troublesome for you if your parcel gets returned or rejected.  

Smart shipping solution 

As your business grows, strategizing shipping and delivery becomes more complex. Coping with the rising demand while managing the timely delivery can be hectic. We suggest you automate your shipping processes with TransImpact’s Parcel Shipping Solutions.  

Our solutions will help you realize 15-25% more savings on your carrier agreements. Our teams work to help you manage your shipping and logistics better, deliver faster, keep an eye on every package, and ensure promised discounts. You can manage your shipments better with our forward-thinking Parcel Spend Intelligence Technology. Use consolidated dashboards to drill down to your parcel data better, identify changes, and control your inventory better. Negotiate better contracts with your vendors, recognize short and long-term saving opportunities, and save more at every step. This helps you save more and provide better service at low prices for your customers. 

Get in touch if you wish to know how our software can help you manage your shipment and delivery better.