Demand Forecasting Software – An art to see the ultimate fate of a business
If 2020 and 2021 have taught us anything, it’s that we can’t perfectly predict the future, but if you could have seen what was going to happen in the past year, you’d probably want to, right? If I could have seen this pandemic happening, I would have invested in hand sanitizer, Zoom, and toilet paper. If I could have seen what happened in the U.S. stock market in January 2021 I would have invested in GameStop.
If you could see what was going to happen in your business, would you want to?
Forecasting is a verb that describes the action of predicting something in the future based on data, history, trends, or a mixture of the three. However, things like the Covid-19 worldwide pandemic and the crazy GameStop stock event are extremely unique events and highly unpredictable. And hopefully this pandemic really is just a once in a lifetime experience for us.
However, there are things within a business that are pretty simple, and very important to forecast. Things like sales and inventory are things that we can predict using historical data to forecast and estimate future needs. For example, if you live in a place where there is snow and you sell tires, you can expect to sell more snow tires in the winter, and thus you will want to make sure you have a higher inventory of those to be able to sell. If you live in this kind of place but you do not take that forecast into consideration, you could lose a lot of money and business for not having enough product to sell or supply to those who need it.
Missing out on business that you could have had if you would have had access to or followed a forecast isn’t just missing out on current business as most people in sales know. You can lose out on future business as well. If you ran out of tires one winter and people went to another business to get what they need, it is likely that they will return to the place that had what they need rather than to try the previous place again.
Using this type of historical data is what’s known as the quantitative method of forecasting. And more specifically, a naive approach. This is just saying that what happened in the past is likely to happen again. The other quantitative methods of forecasting are moving averages, exponential smoothing, and trend projection. However, there are other methods of forecasting that are just as beneficial and important, and some are often a little more accurate.
One type of demand forecasting is called qualitative. Qualitative forecasting, just like quantitative, also has a few types of methods to it; customer surveys, Delphi, executive opinion, and sales force estimates. Customer surveys can be very beneficial in that you are directly asking the consumer about their opinions, habits, and needs. That can be very important to a B2C company who is striving to please and increase their customers.
Sales force estimates can be a very accurate form of forecasting because studies often find that when you ask people what they believe they can achieve, they often do it. Setting goals for other's, while well-meaning, doesn’t mean that they will do it; as every business owner, boss, or team leader knows only too well. Which is why the executive opinion method needs to incorporate other methods of forecasting if it is going to be effective.
In fact, it is important for any demand forecasting software to take many methods into consideration. If you were to base your whole business model on just what has happened in the past, you would not be able to really plan for sudden changes, spikes in demand, decreases, and many others that are very important in business planning.
For demand forecasting to be truly effective, it should be just as dynamic as any business, customer, and product are. No two customers really are the same. And although they may have similarities, no two businesses are going to be the same either. They will progress in different ways and thus their forecasting should be able to predict these differences and help each business to plan accordingly. So what is the best demand forecasting software for you? Something we tell our customers is that it should be one that is able to use not only historical data, but future trends as well. Something that can incorporate the changes, the algorithms, the ups and the downs of business. Your business is unique. So your forecasting software should be unique as well.