Have you ever paused to consider the importance of accurate demand forecasting? Obviously you know it’s crucial to your organization’s success, but until you really hone in on the different reasons behind the need for accuracy, you won’t take customer forecasting as seriously as you should.
Consider the following:
- Customer satisfaction. When a customer places an order for a product, they expect it to be delivered on time. Delayed shipments cost customers time and money, which hurts their bottom lines and ruins your future business relationships.
- Out of stock is costly. From your perspective, an out of stock part or product can prove very costly. It requires your employees to spend man-hours searching for the product and tracking it down. It can also delay shipments that are otherwise prepared and ready to be sent out.
- Overstock creates strains. Overstock situations can put unnecessary strains on your warehouse and increase holding costs. Furthermore, in situations where the overstock is dramatic, you may have to liquidate and eat the margins.
5 Tips for More Accurate Demand Forecasting
Accurate demand forecasting isn’t easy, but it is possible. The key is to identify and leverage the right information at the right time.
Here are a handful of tips that will get you pointed in the proper direction:
1) Use the Proper Inputs
There’s a common misconception that having the right tools can solve all of your problems. This is true to an extent – and we’ll discuss the value of selecting the appropriate technologies later in the article – but you have to remember that a given solution is only as good as the information feeding it.
Take a calculator for example. You can purchase a calculator that handles complicated statistical equations and calculus problems, but it’s virtually useless if you don’t enter the correct numbers.
Demand forecasting is the same way. If you don’t use the right inputs, the outputs you get on the backend will be totally inaccurate. It’s imperative that you feed your systems the right information.
2) Look at Historic Demand
One of the most important truths you can remember is that past trends are not indicative of future results. With that being said, you can tell a lot from studying historic trends and demands. If nothing else, these numbers can be used as benchmarks.
For example, let’s say you’ve been in the seafood business for 20 years. Over this time, you’ve never sold less than 10,000 pounds of crab in a given season. You’ve also never sold more than 20,000 pounds of crab in a season. Based on historic demand, this gives you a range for what you can expect this upcoming season. It doesn’t tell you exactly how much you need to satisfy demand, but it does give you a basic estimate.
3) Adjust for Variables
With historic demand in mind, you should always adjust for variables. Things like weather patterns, economic conditions, geographical patterns, and consumer preferences can impact demand (regardless of the industry).
“Being aware that these variables can exist is the first step,” writes entrepreneur Peter Daisyme. “If you aren’t capturing information about those variables, you begin to question sudden spikes or drops in customer activity and question what might have been the cause.”
Stay up to date on industry trends and develop methods for tracking information that’s specific to your business. The more variables you account for, the more likely it is you’ll produce accurate forecasts.
4) Monitor Real-Time Market Trends
As mentioned, your forecasting accuracy is only as good as the information you leverage. If you want to create useful demand forecasts, then you need to stay on top of information in real-time.
“Avoid the tendency to make decisions based simply on media information, and instead become intimately aware of the dynamics of your marketplace,” says Shawn Casemore, an experienced supply chain management consultant. “This can be done through continuous communication with friendly competitors, customers, bankers, and other individuals who are attuned to your marketplace.”
5) Use the Right Tools
Having the right tools in place is everything. Specifically, you should invest in an ERP solution that allows you to enhance inventory management through better forecasting.
The right ERP system will allow you to consolidate and analyze data, plan for specific demand, and implement lean strategies to realistically meet these demands. Furthermore, because ERP technology is nimble, you can continually make adjustments to account for changes in the marketplace. It’s the smart solution for businesses that are committed to accuracy.
Ready for a specialized food ERP? Learn more about Aptean Food & Beverage ERP JustFood Edition — a solution purpose-built to solve your challenges and propel your food business and digital transformation to the next level.
