Tips to Improve your Forecasting Accuracy

August, 2021

Product-based businesses across the globe and industry require accurate demand forecasting. However, forecasting with accuracy is not easy. The benefits of improved forecasting accuracy result in lower inventory levels and fewer carrying and holding costs. 

As an example, WAOConnect has a client that has contracts with large retailers to supply products to them. Part of the contractual obligation is that they have to keep 45 days of stock on hand. Without proper systems to manage forecast demand, this would be almost impossible to manage in real-time without mistakes. These mistakes could go in both ways, that they have too much stock on and tie up their cash flow or they have too little stock on hand and they risk losing their contracts with the retailers due to stockouts or an audit by the customer. Thus it was essential that they have an inventory management system in place to assist in the forecasting process.

Benefits of Improved Forecasting Inventory

  • Lower inventory levels
  • Fewer carrying and holding costs
  • Ensure the correct product is available at the right place at the right time
  • Improved customer service
  • Less stock-outs

Four Ways you can Improve Forecasting Accuracy

  • Understand what drives forecasting
    Forecasting is built on demand, and if you run your forecasting based on sales, you can run into trouble. For example, if you happen to run out of a particular product or SKU for several months, there are obviously no sales on that product. If you forecast on the sales data, then you might not replace the product because you assume there is no demand. Thus, you should rather forecast on demand.
  • Subjective data vs Objective data
    Subjective data is information gleaned from somebody’s point of view, which includes feelings, perceptions and concerns. Objective data is observable and measurable data obtained from tests, actual records and observations.
    While you will want to take into account the opinions of your staff to find out which products are trending, and which products are no longer popular – you also cannot base all of your forecasts on subjective data. Use objective data as your base for forecasting, as this removes personal bias and emotions, as well as works based on the facts. 
  • Look beyond your doors
    Harvard Business Review states that nearly 85% of a company’s performance is dependant on external factors. But how does a company account for these external factors? Each business, industry and region may be affected by different factors, but these are arguably the most common. 
      1. Disposable income: By tracking the amount of disposable income that consumers have, you are able to determine how much money they have to spend. 
      2. Oil/Gas prices: Oil and gas prices affect most industries worldwide. This cost affects the willingness to drive to the store, to the cost of delivery of goods. 
      3. The weather: Believe it or not, severe weather has huge implications for many industries, and can cause huge delays or total shutdowns.
      4. Raw materials: Fluctuations in raw materials cost can do more than just change the end price, it can also change the demand for the product. 
      5. Industrial production: The industrial production of raw materials, like cardboard, plastic, glass, dairy products, etc. are also indicators of your future performance. 
  • Inventory Management System
    Replenishing inventory at the right time and in the right quantities can be puzzling. The first step is to centralise your data across your sales channels. You can do this with an Inventory Management System. However, finding the right software is a process. You need to figure out the best fit according to your business needs, size, complexity, and more.If you haven’t found a solution, or need a better fit, speak to one of the Cloud Solution Architects from WAOConnect. We specialise in inventory management system selection, implementation and training.

Demand forecasting is pivotal as it helps your business set the correct inventory levels, price products correctly and expand or contract your future operations. Poor forecasting can lead to lost sales, stockouts, unhappy clients and millions in lost revenue. 

Developing an understanding of how to forecast will push your business to the next level. Paul Saffo said, “The goal of forecasting is not to predict the future but to tell you what you need to know to make meaningful action in the present.” Even small improvements can lead to growth in revenue, so make sure you are taking the right steps to grow. 

WAOConnect is Inventory Software Specialists offering system selection, implementation and training as well as existing system Health Checks. Are you ready to find out more? Click here to connect with us. 

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