Steps and benefits of conducting a forecast accuracy

Most people know that forecast errors and forecast accuracy are the critical components of safe stock calculations. In reality, it makes sense that when you know exactly the amount you can sell for every item, you will not be required to undertake safety stock. Most importantly, the precise knowledge of your future demand would increase your inventory and minimize the amount you can invest in inventory. 

Steps for conducting a forecast accuracy

Set clear objectives

Ensure you establish specific forecast objectives. In particular, you need to determine the products involved, the time required, and the forecast scope.

Collect appropriate data

When gathering data, you need to cover fundamental datasets such as product returns, sales volumes, sales channels, date and time of orders.

Data analysis

Analyzing and measuring your data should demonstrate repeated patterns in output and demand. Although there are several tools and approaches you can use in data analysis, their main objective is to compare forecast accuracy with sales performance to enhance future predictions.

Proper planning and budgeting

You need to undertake adjustments to minimize inventory costs, schedule supplier deliveries, and optimize staffing.

Use forecasting technology

Since supply chains continue to become more complicated, organizations find manual methods of interpreting and manipulating forest accuracy inefficient and slow. That is where you can use forecasting technology to offer real-time visibility of your whole supply chain. 

Why should you measure your forecast accuracy?

Monitoring forecast accuracy against KPIs or targets

An organization should monitor its ongoing forecast accuracy to ensure that the forecasting process meets the expected Key Performance Indicators (KPIs) and is under control. Ideally, you need to see continual improvement in your business. However, it can become impractical for complex businesses to determine a forecast error for all individual products. Therefore, you will need summaries to enable concise reporting.

Anticipation or investigation of issues

If you experience any issues in your supply chain, undertaking forecast accuracy might help assess and handle it. In most cases, it becomes useful to identify exceptional chances of high forecast error to anticipate and limit issues from happening. You can use simple measures to generate ad hoc reports and describe forecast accuracy for single periods and single entities.

Enhanced financial planning

You can gather the resources you need to pay for your expenses through accurate demand or sales forecasting by volume and product. That can assist you in avoiding potential loss or penalties and critical access vendors. It can also assist you in minimizing interest payments and reliance on credit. Also, meeting your organizational demands will enable production activities to run smoothly.

Enhanced targeted marketing                  

When you are experiencing limited sales, it might not imply that you cannot afford to reduce your promotional and advertising costs. If you can accurately determine your revenue every year. You can schedule a more affordable marketing plan during low seasons. 

When forecasting, you can have an insight into the potential future demands of your business operations. In particular, monitoring your spending and sales is vital when associated with the attempt to eliminate the cost and achieve operational efficiency. You can have the likelihood of maximizing your profits if you have data to help you in projecting your expenses, revenue, and sales accurately.