Sales forecasting is a tricky business. Overestimate demand and you end up with excess inventory sitting around and tying up capital. Underestimate demand and you run out of stock — and run the risk that customers will go to competitors. This is the Manufacturing Goldilocks Complex: you need to get your forecast “just right.”
The sweet spot is to have enough to satisfy anticipated demand but not too much as to end up with an excess of obsolete inventory. But that can be a tall order in today’s world — where many companies must balance global customer demand with multi-partner supply chains. However, such capabilities are increasingly critical to a business’s success. Today’s companies are dealing with a demand-driven economy where they must be agile and move quickly stay completely on top of customers’ needs.
That kind of agility requires a company to collect data and turn it into actionable intelligence that the supply chain and manufacturing can use. In most companies, the demand and supply sides of the business are typically handled separately, operating different processes and systems which often require manual intervention to bridge the gap.
Getting to “just right” is an achievable goal, but it requires the front and back office to work together to effectively align forecasts to sales and demand planning. Aligning your supply chain and manufacturing with reliable sales forecast is critical to your company’s success, allowing you to increase efficiency and sales.
Many corporations use spreadsheets or home-grown applications to create forecasts that are designed to coordinate supply and demand, but too often these forecasts are inactive documents that sit on a manager’s desk — and are updated a couple times a month, if that. Instead, what corporations need is an interactive application that integrates with existing back and front office systems to aggregate information — and a company culture that encourages the capture and use of the data. Done right, this allows more accurate forecasting, more aligned production and distribution, more satisfied customers — and increased revenue.
But what would such an application look like and how can you company effectively collect and employ the data? Here are some things to consider:
No. 1 - Capturing Information. Since salespeople on are the front lines with the best access to customers, it’s important to capture data from them. However, they’re often focused on the current sale in front of them; entering forecast data can feel like extra work. The easier you make it to enter the data, the more likely they are to do so.
Good forecasting applications should be easily accessible remotely and should work within a company’s existing sales applications — so that salespeople can enter data in the field and without needed to open a new program. If you can remove obstacles to entering the essential data, it improves adoption.
No. 2 - Consistent and Complete Information. Your forecast is only as good as the information it is built upon. The forecasting process should be structured, consistent, and carefully followed by everyone in the company. The right tool can make this easier. It should integrate with back office applications such as your CRM and ERP applications to collect historical data on sales and production. The more consistent and careful the information gathering process is, the less time employees spend double checking numbers or trying to fill the holes in incomplete data. It also removes employees’ skepticism about the data — driving better results.
No. 3 - Evaluate the Data. Be sure to sure to demonstrate to everyone in the company that you’re examining the data for quality and consistency — and scrubbing the bad data. And show that you’re paying attention to the forecasts. When people see the data being carefully collected and effectively used, it increases their compliance with data collection. Also, if they trust the data’s accuracy, then they are more confident about the forecasts. You also want to pay particular attention to changing trends over time so you can leverage data to make business decisions.
No. 4 - Real Time Information. Instead of releasing new forecast data a couple times a month, the right application allows information to be adjusted in real time. It will also share information with multiple users at the same time — permitting people in the field, as well as management, to have visibility into recent changes. This means that sales people can make immediate changes to plans instead of waiting for the next sales cycle. Real-time information also gives the supply chain team insight into demand, so they can make changes accordingly. This improves performance and reduces risk by helping employees identify potential problems and address them quickly.
No. 5 - Data Analysis. One of the most valuable parts of such a system is that you can aggregate data and analyze it, making it easier to track variances to quotes and investigate the reasons. You can ask questions about factors that lead to variances and plan for them in the future. The right application can also measure variances by sales person, product or customer, so you can pinpoint particular issues. Forecasts can be measured over time to determine their accuracy and explore the reasons for variances.
The right application can help with data analytics, including predictive analytics that will help analyze whether your company will have an excess or run short of a product. Predictive analytics can also help you understand a customer’s run rate — how quickly they run through specific products — to predict future needs. It can also note and analyze the how and why behind missed opportunities.
The right application allows your company to become a demand-driven enterprise. By integrating the supply and demand chains, businesses can make a cultural and technological shift from a supply-driven “push” business model to a customer-centric, demand, “pull-oriented” business model. Integrating front and back office functions is the best way to create high-quality customer experiences. It reduces inventory expenses and enables just-in-time manufacturing to deliver the experience that the customer is expecting.
Andy Schoka is Managing Director of Acumen Solutions.