Profit From Your Forecasting Software

CHAPTER 1Profit from Accurate Forecasting

1.1 THE IMPORTANCE OF DEMAND FORECASTING

Forecasts of demand for products and services can be crucial to the operations of most companies. Inventory planning, logistics planning, production scheduling, cash flow planning, decisions on staffing levels, and purchasing decisions can all depend on forecasts. Making these forecasts perform as well as possible will lead to improved customer service levels and so foster customer goodwill and retention. It will also lower costs. There will be less need for expensive emergency production runs, and there should be a reduction in the waste associated with excessive stock levels and unsold products.

Figures for the cost reductions or increased profits that companies achieve through improved forecasting can be hard to come by – most organizations don't publish them. However, one forecasting software company (www.catchbull.com) estimates that avoidable forecast errors can add between 2% and 4% to costs of production. They quote the case of one $15 billion firm where executives estimated that “we can drive up to $200 m of avoidable costs out of the business.” A survey carried out by a Triple Point Technology in 2013 indicated that reductions in inventory levels resulting from improved forecast accuracy meant that a company with a $1 billion turnover could expect savings of between $5 million and $10 million. However, the same survey found that 40% of respondents admitted that they were “not currently ...