What is a potential consequence of poor demand forecasting?

Poor demand forecasting can lead to stockouts and excess inventory as a primary consequence. When demand is inaccurately predicted, the organization may either overstock, leading to excess inventory, which ties up capital and increases carrying costs, or understock, resulting in stockouts where products are unavailable to meet customer demand. This can negatively impact customer satisfaction and sales, resulting in lost revenue and damage to the company's reputation.

In addition, poor forecasting can create challenges in aligning supply chain operations effectively. If the demand is underestimated, the organization may struggle to fulfill customer orders, leading to missed sales opportunities. On the other hand, if demand is overestimated, it can result in surplus products that may have to be discounted or even written off, further straining operational efficiency.

Understanding demand forecasting's impact is critical for maintaining optimal inventory levels that satisfy customer needs without incurring unnecessary costs. This balance directly influences operational efficiency, customer satisfaction, and the overall effectiveness of material management practices.