Forecasting can sometimes seem like an exercise in futility. You invest a lot of time, resources, and energy into creating them on a weekly, monthly, and quarterly basis, yet oftentimes, they’re off base. What’s more, you know you’ll never achieve 100% accuracy. Even so, there are no two ways about it: if you want your company to succeed, forecasting is key. Read on for 4 reasons why focusing on forecasting is a must.
1. You’ll be able to set a realistic budget
Demand forecasts may not always be accurate, but an educated, data-driven prediction gives you a solid starting point to work from. Once you’ve determined how much you think you will sell, you can estimate what your sales and revenue numbers will be. And you’ll also gain more insight into your variable expenses for a given period. From there, you’ll be able to create a realistic budget that everyone in the company can follow, thus minimizing the potential for cost overruns.
2. It’ll empower you to make staffing decisions
Forecasting enables you to anticipate when spikes and dips in demand will happen. This, in turn, influences personnel decisions. If you’re expecting a huge influx of customers, for example, you may decide to hire new customer service representatives. And during lulls in demand, you may let a certain number of employees go (especially if they were hired as temporary workers). Or depending on the business need, you could decide to shift their responsibilities to other, more pressing tasks.
3. You’ll be able to better manage your production schedule
Along those same lines, knowing when and how to ramp up production is imperative. If, for example, your demand planners forecast a spike in demand, you’ll need to make sure you’re able to deliver on an accelerated timeline. Advance notice to your usual suppliers, original equipment manufacturers, and production facilities could mean the difference between smooth sailing and choppy waters. And in the event they aren’t equipped to handle the sudden influx of orders, forecasting may give you enough leeway to make contingency plans so that you’re not left in a lurch because of their limitations.
4. Optimizing inventory levels become easier
All companies should carry a certain level of safety stock. But you also need to strike a delicate balance between having too much or too little on hand. Excess inventory incurs additional costs and, therefore, eats away at your bottom line. But keeping too little on hand increases your risk of experiencing stock outs. If you are able to predict demand — even if you just produce a rough forecast — you’ll be able to better determine how much inventory you should have on hand at any given time.
It's true: Forecasting is not an exact science. But simply forgoing it all together is not an option. On the contrary, while companies must accept that 100% accuracy is impossible when it comes to forecasting, they should make every effort to get as close as possible. Investing in the right technology, like our Atlas Planning Suite, and eliminating manual processes will go a long way towards this goal.