Sales forecasting is one of the hardest tasks for distributors, but the right approach combined with the latest technology can go a long way.
The primary goal of forecasting is to project the future demand for certain products, and that’s a very difficult task. You need to know your customers, understand what their needs are and combine that with historical sales information to identify trends.
If you’re able to manage historical sales information by product, for example, you’ll see which products are selling. If the sales numbers are smooth, reflecting a trend, then you’re better able to predict the future.
But if there’s not a smooth trend, you need to make adjustments. You may have high sales one month and low sales the next or different products selling at different rates. What you may need to do then is more of a smoothing method to help estimate the math across multiple products or classes of products.
One of the first things to do when sales forecasting is identify a timeframe. For example, do you want to predict one month out or a full year? It’s a lot easier to forecast in the short term because current historical information will have the most impact near term.
It’s a lot tougher to project that outward a full year. If you need to predict further out into the future, then you need to deal more with expert opinion as opposed to relying solely on historical information. You need to combine those elements.
As far as technology is concerned, a forecasting system can help calculate demand based on historical information because it knows seasonal fluctuation. You’re able to set the timeframe parameters around sales forecasting. This allows you to put in your preferred stock levels so that the system calculates what you should keep on hand.
It takes into consideration sales information, sales forecasting and historical trends. You can also automatically create purchase orders based on that information. It also creates work orders automatically if your company builds or assembles products.
However, many companies still aren’t taking advantage of the technology that’s available to them, instead opting to use spreadsheets and other manual processes, according to a post on the Ventana Research blog.
“It’s not easy to manage forecasts and pipelines that have specific time series and change level analytics in a spreadsheet,” the article says. “A better approach is to use applications designed for the task, and designed not just for sales operations but for the entire sales team.”
As far as what your timeframe should be, it really depends on the distributor. Some are seasonal, so they will only predict out the season. For example, if you’re a clothing distributor, you don’t forecast for the summer season earlier than the spring season.
Having integrated ERP distribution software is important to sales forecasting because it takes into consideration what you already have on hand. If you’re forecasting that you need a certain amount of stock and you already have a certain amount on hand, you only need to buy the difference.
It takes into consideration lead time as well. If it takes a month to order certain products and you’re trying to forecast a month out, you have to know how much you need in stock to last a specified amount of time.
ERP distribution software can also alert you to potential problems coming down the pipe. In other words, if you need a product in two weeks and you see that you’re not going to receive it for a month, then that gives you a little bit of advance notice to see if you can order it from another supplier sooner.
Integrated ERP distribution software can also help you avoid making a problem worse with regard to excess inventory. The only reason you’d have excess inventory is if you anticipated something was going to sell and it didn’t. Visibility is the key here; you must know how quickly products are selling and what’s in demand.
Sales forecasting isn’t easy for distributors. Fortunately, technology can help, and when the process is done right it can make a substantial positive impact on your business.