How To Forecast Seasonal Demand To Manage Delivery Costs
August 4, 2023
As the seasons change, so does customer behavior. Black Friday, for example, marks the beginning of the famous Christmas rush, as retail sales spike in the build-up to the holiday season.
While increased sales are always welcome, the simple fact is that companies must have a plan for how to forecast seasonal demand—or else they could be caught out by low stock levels and delivery problems.
According to Drewry’s Ports and Terminals Insight, in 2021 and 2022, cargo ships had to wait in their ‘pre-berth’ stage for over 25% of their total port time, largely due to pandemic congestion of the world’s major shipping routes. As a result, delivery costs spiked and many customers avoided making purchases.
So, retailers, including e-commerce businesses, find themselves under increased pressure to learn how to forecast seasonal demand and plan their product’s logistics further in advance. This is particularly true in markets like the UK, where Brexit-era trade regulations have led to increased red tape and greater barriers to trading.
Does this sound like a familiar problem for your business?
Then you’ve come to the right place! In this article, we’ll explore the intricacies of demand planning and forecasting methods to help you optimize your supply chain operations. Let’s dive in.
What is seasonal demand?
Seasonal demand is fluctuation in customer demand for products or services, based on seasonal patterns that occur during specific periods of the year.
These shifting demands often follow a predictable pattern, but they can differ each year based on various factors, such as:
Short-term weather conditions
Local holidays or cultural events
Social trends as demand for certain products comes in and out of fashion
Seasonal factors often have far-reaching effects on many industries, from retail and hospitality to tourism and agriculture. No matter what your sector or location, understanding consumer behavior is vital to align your seasonal products, production, inventory management, and marketing efforts.
If you can create an accurate seasonal demand forecasting model, your business will be able to optimize its resources, minimize costs, and meet customer demands effectively during both peak and off-peak seasons.
The role of seasonal demand forecasting in delivery cost management
One crucial reason to forecast seasonal demand is because of the variation in delivery costs at different times of the year.
Accurate demand forecasting allows businesses to anticipate and plan for fluctuations in customer demand and manage their delivery costs. By understanding the trends specific to your industry and target market, you can better understand consumer demand and avoid products going out of stock.
Factors to consider include:
The expected volume of orders in a given month.
Products that are likely to experience overstocking or under-stocking.
Whether additional staff or temporary hires are required during periods of high demand.
Taking a proactive approach to long-term planning will help maintain business service levels, reduce delivery lead times, and enhance overall customer satisfaction.
Overall, effective forecasting of seasonal demand empowers businesses to make informed decisions and manage costs more efficiently, ultimately contributing to improved profitability.
How to forecast seasonal demand to manage delivery costs
Here are seven proven strategies for forecasting seasonal demand to help you manage delivery costs.
1. Identify factors that impact sales trends
To effectively predict seasonal demand, it’s essential to identify the key factors that influence future sales patterns and trends.
One crucial asset is historical sales data. Analyzing past sales data trends provides valuable information about the timing and magnitude of seasonal fluctuations. You should aim to identify peak seasons, off-peak periods, and any seasonal patterns that influence demand.
Market trends and industry reports provide further insight into broader market conditions, competitor strategies, and emerging consumer preferences. feedback, surveys, and social media analytics can also help your business understand buying habits and social trends.
2. Align marketing and sales team data
Fostering a collaborative culture between departments in your company is a good way to make sure you’re using collective knowledge to make the right decisions.
For instance, marketing teams possess valuable information about promotional campaigns, advertising initiatives, and customer psychology. By getting them to share marketing data with your sales team, you can gain insight into the effectiveness of marketing efforts in driving demand during different seasons.
Sales teams, on the other hand, directly interact with customers and can provide first-hand insights into their preferences, feedback, and buying patterns. This information should likewise inform a company’s marketing strategies, ensuring promotions and campaigns are designed to cater to seasonal fluctuations.
3. Use statistical techniques to develop forecasting models
Big data should be central to your forecasting techniques. Using advanced analytical tools will enable you to uncover complex patterns and make predictions a human wouldn’t be capable of. Many of these tools are now included in accounting software, so even as a small business you don’t need an in-house expert to use them.
Some approaches you may want to explore include:
Time series analysis. This focuses on historical data and recurring patterns to quantify the impact of seasonality.
Regression analysis. This aims to uncover the correlation between demand and factors such as price, promotions, and external variables.
Implementing these techniques can help you optimize delivery costs by aligning resources, adjusting inventory levels, and fine-tuning your operational strategies based on forecasted demand patterns.
4. Watch industry trends and market conditions
Every manager should be aware of how their company is positioned compared to competing firms.
Follow industry publications and market research reports to stay up to date with new product launches and evolving market dynamics. This information is useful for evaluating your forecast models in comparison to the industry landscape.
Then, keep an eye out for economic indicators, such as supply chain disruptions and regulatory changes, and the effect this has on seasonal demand. For example, during periods of economic downturn, consumer spending patterns may change.
Finally, keeping up-to-date on competitor strategies and activities is essential. For instance, many businesses today are reworking their last-mile delivery strategy to cut costs and adapt according to seasonal demand.
5. Collaborate with suppliers for capacity and resource planning
Effective collaboration with suppliers is an under-rated power strategy. By establishing strong partnerships and open lines of communication, you can guarantee optimal supply chain management and replenishment of your ranges throughout product life cycles.
Engage suppliers early in the forecasting process, sharing your expected order projections so they can adjust their production and inventory levels accordingly. Taking a collaborative approach helps prevent supply chain bottlenecks and minimize stockouts.
Once you’ve established a positive working relationship with a supplier, you’ll also gain more insight into lead times, production capabilities, and potential constraints that may impact delivery schedules. As such, you’ll always be one step ahead of the game compared to competitors who neglect to do this.
Running an efficient invoice system will help make sure that your suppliers are paid on time and in the right currency, as well as generating reports for B2B communication. These applications are crucial if you’re based in a different geographic market to your suppliers. For instance, a British company would likely seek an invoicing solution that can easily convert currencies to the US Dollar or Euro.
6. Implement inventory management strategies
Seasonal inventory management is essential if you’re to plan for future demand.
Firstly, your business should adopt a demand-driven inventory management practice. This involves closely monitoring sales patterns, adjusting order quantities, and employing just-in-time (JIT) or lean inventory management techniques. By aligning inventory levels with anticipated demand, your business can reduce carrying costs and avoid overstocking or under-stocking during different seasons.
Additionally, your business should conduct regular inventory audits to identify slow-moving or obsolete stock. This can free up valuable warehouse space, reduce holding costs, and prevent potential losses. Another factor to consider is insurance expenses, which can quickly become a financial burden if not regularly monitored.
By implementing robust inventory management strategies, your business can identify cost metrics related to seasonal demand, make informed decisions regarding inventory levels, and benefit from an efficient utilization of resources, leading to reduced costs and improved profitability.
7. Use dynamic pricing strategies
In short, dynamic pricing means setting flexible prices that respond to variations in demand.
The benefit of this is it allows businesses to capture the value customers place on products or services. For instance, during periods of high demand, prices can be increased to maximize revenue, while during low-demand periods, they can be lowered to stimulate sales and maintain competitiveness.
Of course, you should also consider the effect of delivery costs on product pricing to maintain steady profit margins throughout the year. Making the most of pricing algorithms can be useful here. These tools can monitor market conditions, competitor prices, and customer demand in real-time, enabling you to make swift and data-driven pricing decisions.
You can also use an online accounting solution to analyze factors such as expense tracking, cash flow management, and financial reporting – which helps when anticipating future trends and planning for seasonal fluctuations. Make sure to pick a program that pinpoints data from all of your outgoings, such as HMRC-specific taxes if you’re based in the UK, or the IRS if you’re in the USA.
To wrap up, learning how to forecast seasonal demand is vital for streamlining your operations and keeping delivery costs under control. By taking a proactive approach, analyzing data, and incorporating our best practices, your business can thrive regardless of the season and achieve greater supply chain optimization.