Sales Forecasting Efficacy

Source: Global Sales Operations Association

Introduction:

In today’s globalized economy, supply chain management has never been more critical than it is today. Supply chain speed and agility have become two major competitive differentiation levers, while sales forecasting has become crucial to improving the supply chain.

A modern marketplace is volatile and constantly changing. Product lines are multiplying, supply chains are getting longer, lead times are getting longer, and demand patterns are becoming more intermittent and hard to predict. Despite this, most companies continue to rely on spreadsheets and ERP-based solutions that fall well short of the business needs of disrupted supply chains.

Problem Statement:

In the absence of visibility across the organization or formal forecasting, companies typically rely on the rule of thumb logic or do not establish an inventory policy in the first place. Consequently, too much inventory builds up, unhappy customers become upset, and the company struggles to respond to uncertainty. The improvement of forecast accuracy, demand planning processes and inventory optimization will yield significant economic benefits.

The Solution:

Considering inherent demand patterns such as trend and seasonality and feedback from external and internal sources helps eliminate the possibility of unexpected sales orders being back-ordered or lost. A strong foundation for negotiating with vendors is built by effectively forecasting. The use of statistical forecasts and estimates of better- and worst-case scenarios can clarify the expectations between supplier and customer. 

Inventory reduction opportunities exist for the less critical items that are forecasted to achieve 99%+ service levels. Using lower service levels for less critical items will lead to a “right-sizing” of inventory systems over time, reducing holding costs and stockpiled value. The cost of carrying inventory is around 24% per Annam as a thumb rule.

Desired State

Optimizing Inventory levels means savings realized on one subset of items can be reallocated to carry a broader portfolio of “in stock” items allowing revenues to be captured that would otherwise be lost sales.  

Your strategic inventory plans will ensure that you establish consensus among all stakeholders if you are able to model and communicate expected demand and ranges, along with the specific trade-offs between service levels and inventory costs. When true consensus and understanding have been achieved, the organization can identify areas of risk, where they are likely, and plan accordingly.

The Truth

Finally, we have a consensus-driven sales forecast, and if we think that we will have a happy ending, you are mistaken.  A myriad of issues could cause the sales forecast to deviate and necessitate changes initiated on the fly. Uncertainty is the certainty of modern supply chain planning!

Source: Metrology Corner