Demand volatility is one of the largest contributing factors to any business leader’s stress levels, according to a Gartner survey. It’s not surprising, as demand forecasting will touch almost every aspect of the organization. Getting it right will save you money, getting it wrong and you’re likely to lose money. Until now, demand forecasting (or sales forecasting) has come down to executives’ experience and gut-feeling, and many times it’s done without any specific logic behind it at all.
Most of us are guilty of forecasting by adding 3-5% to sales every month in Excel, and then simply drag the selection across the columns, as if the sales always increase by the same amount every month. The logic is, most likely, that the sales have increased by an average of 3-5% on a monthly basis recently and we expect (hope) that it’ll continue like that. Let me break it to you: This is not forecasting. This is guesswork!
SUMO Analytics applies Advanced Demand Forecasting technology using machine learning where all relevant information, historical data from a variety of sources within the organization, and even known future events, are used to predict the future as accurately as possible. Companies who are not using this revolutionary technology are not forecasting at all, and are far behind other organizations who have adopted sophisticated forecasting methods.
The obvious benefit is that the company gets information of superior accuracy. Forecasts can be made for each and every client, certain groups of clients, each and every product or product categories. By using machine learning in forecasting, companies will have a forecasting technology that will constantly be improving and becoming more accurate every day.
With constant updates of data into the system, i.e. new orders, change in orders, new clients etc., the forecasts are constantly updated automatically. Every time new data enters the system (which can happen many times per day) the algorithm adapts and improves and truly turns into an automated learning cycle.
Demand forecasting touches every area of the organization
For business leaders, having an overview of the whole company and every department can be a daunting task. Solving different problems every day and putting out fires can make the management lose focus on what matters the most. In order to stay on track, having an accurate demand forecasting that’ll influence every area of the organization is critical.
Budget Preparation Research shows that most companies are getting budget planning wrong. Those critical times in the year when the management aims to be as accurate as possible in planning the budget for the following year or quarter, accurate demand forecasting is imperative.
Securing Financing When the organization has accurately forecasted the demand, it gives executives the time needed to secure financing and even the room to get better terms. With inaccurate forecasts, business leaders have less visibility for the future and are more likely to be taken by surprise, putting them in a tight spot, timewise, when looking to negotiate financing terms.
Cost Control Advanced demand forecasting allows organizations, especially those in manufacturing, to secure raw materials in advance and the opportunity to negotiate better prices. Too often, when demand is not clear, companies turn on panic-mode to buy raw materials last minute and often have to pay premium prices and higher logistics costs.
Sales Planning / Targeting With clear demand, commercial teams can better plan their sales and align their sales targets, and at the same time, better communicate with production departments for upcoming deliveries.
Pricing Based on Demand Knowing the changes in demand, sales teams can adjust prices according to market demand and therefore maximize value.
Production Planning One of the main benefits of demand forecasting is clearly production planning. Plant managers can organise the increase/decrease of plant workers ahead of time, and streamline production planning in the most efficient way possible. With poor demand forecasting, factory managers often have to respond to sudden changes by adding or reducing shifts with plant workers working over-time adding unnecessary cost to the production process.
Production Capacity Advanced demand forecasting also allows plant managers to understand the future capacity needed in the production. If demand is forecasted to increase beyond the plant’s capacity, measures can be taken in time to expand production capacity.
Inventory Management One of the areas where organizations can save the most cost is in inventory management. This is the ultimate benefit of demand forecasting for companies that have warehouses and need to plan inventory levels ahead of time. Too much inventory when demand is low can be very costly, and too low inventory when demand is high can put strain on the production side.
Obviously, to run an organization in a streamlined and cost effective way will always come down to accurate demand forecasting. If companies are struggling in one area, the tendency is to focus on that area solely. This is a common mistake, as the different areas within an organization are interconnected and a storm in one area creates waves in another. In most cases it comes down to the simple, yet complicated, fact that demand forecasting was done improperly.
Not knowing the future is no longer an excuse.