In business, sales drives both production and procurement. For some, providing sales forecasts is all about speculation, while for others, being accurate with these forecasts is an absolute must. With both ends of the spectrum present, how important is it to be accurate in sales forecasts?
More importantly, how does a company go about ensuring their sales forecasts are not only accurate, but realistic? After all, if that forecast isn’t accurate, a company could be producing and purchasing, too much, or too little, and neither of these outcomes is acceptable.
Is There a Way to Improve the Accuracy of Sales Forecasts?
When it comes to addressing forecast accuracy, it’s important to take a look at the type of market that company operates in. Is the demand for the company’s products cyclical, with ups and downs, or is it linear, where customer demand is more consistent? These are the types of questions that need to be asked.
Obviously, it is much easier to be accurate in a market where demand for products is constant. Being accurate when shipping products on a daily, weekly, and monthly basis, is relatively easy. While there are some fluctuations in demand, for the most part, forecasting in a linear market is relatively straightforward. However, what happens in a cyclical market?
How Does a Company Improve its Forecast Accuracy with Infrequent Demand?
Perhaps the biggest challenge facing sales, is to provide an accurate forecast when the demand is infrequent. Servicing a market with infrequent and inconsistent customer demand is challenging to say the least. Therefore, in order to improve accuracy, sales needs to break down their forecasts into more manageable pieces, and not forecast demand beyond a reasonable time frame.
In doing so, it requires better cohesiveness between sales and their customers, and better management of a company’s vendors, in order to have the raw material and products ready at a moments notice. However, there are two other important criteria that every company needs to improve their sales forecast accuracy.
Using Historical Sales, and Current Agreements, to Improve Accuracy
A company’s sales history, and its current contractual agreements, are two criteria companies can use to not only improve their accuracy, but also guarantee future sales. Companies must pay close attention to their historical sales figures, and pursue as many contractual agreements on supply, as necessary. By paying close attention to seasonality, potential demand, and constantly pursuing agreements on future supply, a company can ensure that what it makes and puts in inventory, will have a high probability of being sold.
Having an accurate sales forecast is an absolute must in today’s business environment. It forces sales to become more in tune with customer demands, and to pay closer attention to the inner workings of that customer’s business. Being aware of what a customer might need, and when, must go hand in hand with knowing how well that customer is doing financially. Forecasting business for a customer whose future is in question, simply doesn’t make good business sense.