Sales forecasting is an essential tool for any business, as it allows you to estimate future sales and make strategic decisions based on realistic projections.
The best forecasting uses a mix of methods, the key is to consider what quality of data you have available.
Start-up company: often uses a qualitative method.
Established company: often opts for a quantitative method.
Quantitative data provides decision makers with a starting point. Incorporating qualitative data, in turn, fleshes out the model. Use industry-specific data to complete the forecast.
The trick is to make sure the model reflects unpredictable factors, i.e., constantly changing and often unpredictable market trends and disruptions that can change demand in an instant.
What depends on the demand forecast?
Demand forecasting or sales forecasting is a crucial tool for several areas within a company . as it provides valuable information for planning and decision making. Here are some of the main areas that depend on demand forecasting:
- Determination of demand per SKU
- Determination of Production
- Determination of inventory requirements
- Determination of purchasing and procurement needs
- Determination of cash flows
- Determination of Human Resources needs
Determination of demand for each SKU
Many times the forecast gives us data that must be processed or opened in several SKUs to be used in other areas of the company.
Determination of Production:
Production Planning: Informs about the quantities of products to be produced, which helps to optimize the use of resources and minimize production costs.
Capacity Scheduling: Helps to manage production capacity, avoiding bottlenecks and adjusting production to fluctuations in demand.
Determination of inventory requirements:
Inventory control: Allows maintaining optimal inventory levels. Customer service levels, optimal inventory levels should be considered.
Replenishment: Helps to plan when and how much to replenish to maintain a constant flow of products.
Determination of purchasing and procurement needs:
Purchase planning: Anticipates the company’s needs, considers procurement lots. Helps determine the quantities of raw materials and supplies to be purchased and when, ensuring an efficient supply chain.
Supplier relations: Enables better negotiation with suppliers based on long-term demand forecasts.
Determination of financial:
Budgeting and financial planning: Demand forecasts are essential for budgeting and financial planning, enabling more accurate estimation of revenues and expenses.
Cash flow management: Helps forecast cash needs and plan for appropriate financing.
Determining Human Resource needs:
Workforce planning: Demand forecasts influence hiring and scheduling decisions, ensuring that there are enough employees at critical times.What is the best sales forecasting method for your company?