As you develop your business, your need for scalable solutions grows. While many people think in terms of software as a scalable solution, your business practices and procedures also need scalability.
When you begin a small operation such as a baker or an on-demand manufacturing operation, you fill orders as they come in to your shop. Once you begin moving stock to retail outlets though and offering product on a large scale, you need to know the hot spots of the fiscal year that you need to increase production. You also need a method of predicting when you might need additional product due to temporary demand increase.
Rather than waiting for demand to increase and your production to fall behind, you can use demand forecasting to put yourself ahead of these spikes in need and better many your supply chain.
When you first start out, you might rely on simple methods like last year’s sales figures. You set that as your minimum quota and anything above that is gravy. That can work for many small businesses, but once you grow, it ceases to fulfill your forecast needs.
A better method includes detailed market analysis, plus sales timing. It includes if, then projections. If the flu breaks out that the government declares a pandemic, then you need X amount of additional tissue, flu medication, etc. Essentially, fill in the blank of your product.
Using a more detailed method linked to your software solutions like ERPs that bundle in inventory tracking and logistics, can increase efficiency. It can also help you improve your labor management since you will know when you need to hire temporary employees to fulfill production numbers.
All of this assists your financial planning since you experience an improvement in cash flow by providing products in a timely manner so it flies off of the shelves. This ensures you have funds to pay suppliers and vendors which means you always have the means to create additional units.
It also helps you create appropriate budgets that plan ahead for demand lows and highs. Knowing when a decrease in demand likely occurs lets you plan. You can increase your cash reserve to cover costs and maintain financial health.
Demand forecasting does have its imperfections. It does have limitations in what it can forecast. It cannot tell you when a weather event might impede deliveries, but it can help you develop the scenario options for dealing with the situation when it occurs, i.e. the if/then scenarios.