The failure to create a viable sales forecast can lead to poor inventory decisions, higher operating costs, and the sacrifice of service level, all problems that can jeopardize a company's success. But, what can companies do to avoid the black eye of running out of a product on promotion, or losing market share while controlling costs?

“It’s a basic business principle: your supply must meet demand,” says Rebecca A. Morgan, president of Fulcrum ConsultingWorks, Inc., a Cleveland-area manufacturing consultant. “The key is to understand how to make that happen. Circumstances and interests change. Having a good idea of what’s coming can improve your customer service, sales, AND the bottom-line. Whether selling movie popcorn, financial planning services, or plywood in Florida, businesses need to confidently forecast demand.”

There are many ways to forecast. Some companies use intuition, others use expensive software.  The sad truth is that few forecasts are right. A successful business forecast uses varied information and methods to get the end result. Forecasts don’t have to be perfect; but good enough for you to react and make informed decisions for the circumstances at hand. The value of the information it provides must be worth more than it cost to create.

Rebecca A. Morgan offers four tips to help companies forecast successfully.

1. Leverage your own expertise: Don’t leave forecasting to the devices of software or detailed equations. Apply judgment.  Make sound decisions that leave you able to say, “This seems reasonable” about the forecast model and forecast itself.
2. Develop a relevant forecasting process: Forecasting is a process, not an event.  Your forecasting process must be reliable and repeatable: a routine, in which steps are defined to ensure you’re using the correct data and that the right people are involved at the right times. Delineate responsibilities and timing. It’s less important where those responsibilities lie, more important that they’re defined, implemented.
3. Understand how the forecast will be used: Generating the forecast is not the end all. The purpose of forecasting is to support better decision-making. Forecasts for long-range decisions like moving to larger space don’t need the same detail as forecasting for short-range decisions.  A specific forecast must be generated to support a specific set of decisions.
4. Choose an appropriate forecast model: Avoid those that demand more mathematical or statistical know-how than the employees using them have. If using a complex model, train the appropriate people to use and interpret the forecast correctly. While software can be valuable, never trust the software alone.

© 2005-2007 Fulcrum ConsultingWorks, Inc.

Since 1990, Rebecca A. Morgan, President of Fulcrum ConsultingWorks, Inc. has generated bottom line improvements for her clients through development of more effective operations. Sign up for her informative newsletter at www.fulcrumcwi.com.

© 2007 Permission is granted to reprint this article if the paragraph above is clearly included and contact information www.fulcrumcwi.com is provided.