If you use an ineffective demand forecasting method, you could be creating problems for the future. Not only could you fail to maximise your profits, you could eventually damage your brand. Let’s take a look at the issue – and the solution – in more depth.
What Do We Mean By ‘Poor Forecasting’?
Poor forecasting methods include everything from using ineffective tools to focussing on the wrong factors. Many companies still rely on manual or semi-automated forecasting tools, such as Excel spreadsheets, and these are far from optimal.
This is an issue because of the risk of human error. A seemingly small problem, such as some transposed digits, can affect your calculations dramatically, playing havoc with your inventory management system. It’s also difficult to ensure that all departments are using these tools in the same way. The more people contributing to a manual system, the more likely it is that something will go wrong.
Also, when humans analyse data manually, bias can easily creep in. You may start to see the patterns that you want to see, or focus on one strand of data too heavily and miss other key information. Finally, you may find it tricky to spot subtle patterns or notice small, yet significant, changes in trends.
The Implications For Your Company
The less accurate your forecasts are, the more problems it could cause your company, both in the short-term and the long-term. Here are some of the issues that poor forecasting can cause:
1. You won’t understand your customers, making it harder for you to develop products that suit them or predict what they’re likely to buy at any given time. This could prevent you from hitting your sales targets.
2. You could underestimate the amount of stock or resources you need at busy times and fail to meet market demand. This could negatively impact your company reputation and drive your customers elsewhere.
3. You could order too much stock. If you’re selling consumables, you may have to throw unsold stock away. Even if your products are evergreen, you’ll have to shell out to store them until you can find buyers.
4. You won’t be able to produce accurate financial plans or set realistic key performance indicators (KPIs), so executing your business plan will be more challenging. This could affect your company in a host of ways – it could cause cash flow issues, for example, or affect your ability to obtain funding to expand.
How To Resolve The Issue
You can minimise the chances of your demand forecasting efforts negatively affecting your bottom line by using the latest software. Reflex Planning’s solution will help you improve your forecasting accuracy so that you can optimise your company’s performance. Schedule a free product demo today.