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An Ultimate Guide to Forecasting: Methods to Boost Accuracy

Forecasting refers to projecting what will happen. In business, this typically means using past events and data to identify trends. Oftentimes these calculations consist of complex algorithms that can take some time to complete. That is why many companies use business forecasting software, also known as sales forecasting software or inventory forecasting software, to do the heavy lifting for them. Demand forecasting software helps businesses operate effectively, lessening the influence of future uncertainty by analyzing historical trends and data. There are also demand planning software tools that empower businesses to plan purchases and create a strategy for budgets that will ultimately help meet future demand.

 

How does forecasting work?

A company will use forecasting to identify and examine events that have had an impact on company performance. This allows them to have a better idea of when sales will rise or fall so that they can plan the inventory they’ll need to meet the sales demand ahead of time. Business forecasting software also provides a more general, big-picture outlook for companies that don’t have inventory-based products. Stock analysts use forecasting to estimate how trends, such as unemployment, will affect the coming quarter or year. Economists develop opinions regarding the circumstances analyzed that must be established before forecasting variables are defined. Based on the need, relevant data is used to create a picture of what to expect. The data is analyzed and then the projection is defined. Once a forecast is generated, experts can make adjustments as necessary to further reflect expected changes like promotions or events. A judgement can then be made moving forward to determine which algorithms and adjustments led to the most accurate forecast, which information can be used to further improve the accuracy. To understand more about forecasting, we’ll delve deeper into the methods involved in generating a business forecast.

 

What is planning, budgeting, and forecasting?

Planning, budgeting, and forecasting is an interactive process for managing and mapping out an organization's short and long-term economic goals:

  • Planning – The core of a business's financial goals, typically for the     next five years.
  • Budgeting - helps analyze how the plan will be carried out month to     month to includes revenue, risk, potential cash flow, and debt     modifications. They may also modify the budget as time goes on depending     on actual revenue and financial statements to define how close they are to     meeting or exceeding their defined budget.
  • Forecasting - uses historical data and factors such as seasonality and     current growth. Forecasting is then used to determine how much revenue an     organization can expect to bring in over the next few months or years.     Projections are usually improved as new information becomes     available. 

The CFO and finance department manage the process in relation to revenue, budgeting and finance, but forecasting can be expanded to include all administrative planning areas, including financial planning and analysis, supply chain planning, sales planning, workforce planning, and marketing planning.

 

Methods involved in demand planning and forecasting

Forecasting helps develop business plans and strategies. Financial and operational decisions are made based on economic conditions and how the future of the business or industry looks. Past data is accumulated and examined to find patterns. Today, there are many different software solutions and tools using business forecasting methods. Most inventory forecasting software tools offer forecasting methods compatible with businesses across any industry

 

Now, let’s break down the methods involved in business forecasting.

 

Demand Planning:

Demand planning is a process of supply chain management and supply planning that uses forecast demand to plan enough inventory to meet customer demand and maintain customer satisfaction. The goal is to plan to meet customer requirements without having a surplus of inventory taking up space in the warehouse. Several factors can affect demand, such as a change in workforce, economic changes, severe weather, natural calamities, or global emergencies. If the product isn’t available for customers to purchase because it’s out of stock, businesses lose revenue, and they could lose a customer to an opponent who has the product in stock.

On the other hand, a surplus of inventory raises both warehousing and production costs unnecessarily. With demand planning, business leaders can stay ahead of demand and make more proactive decisions while being responsive to their customers' requirements. Using demand planning software, supply chain management software, or supply planning software will help a business overcome these types of issues and situations.

 

Sales Forecasting:

Sales forecasting is a process of business forecasting and demand forecasting. This process involves predicting sales revenue on a periodic basis. These projections help sales managers develop sales strategies and financial tactics. Sales forecasting is useful for businesses with established SKUs, a constant revenue stream, and a process for revenue management. Sales forecasting software, business forecasting software, or demand forecasting software doesn’t generate the best results for new stocks or goods whose pricing is still flexible. Typically, an established sales process also helps in increasing forecast accuracy.

Sales forecasts are directional, and hey always strive to provide the most accurate results. Even with a small variety of mistakes they can motivate a team to boost their efforts. There are several best sales forecasting software tools that you can choose according to your business requirements and needs.

 

Inventory Forecasting:

Inventory forecasting calculates the inventory required to satisfy future customer orders based on how many physical products you predict you will sell over a specific time. These measures use historical sales data, planned promotions, and external input to develop accurate outcomes for your business. In short, inventory forecasting is done to determine your inventory levels and save up on values that might be tied to operating stock. This helps you to improve your inventory and manage more efficiently.

 

Several parameters should be considered to achieve the most accurate results:

  • Projection time - A forecast period is a specific amount of time     that decides the forecast quantity.
  • Trend - A trend is a consistent fluctuation in demand across a specific     period.

 

Avercast’s all-in-one, world-leading demand forecasting software helps you manage stock, demand, and delivery with the most accurate process available today. Schedule a demo of the best forecasting software for your company today.

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