When The Forecast is Wrong
Remember that day a while back when you confidently strode out of your house adorned in your summer standard of flip flops, shorts, and a tank top, only to be greeted by an unforeseen and unrelenting Fall wind?
Maybe you valiantly shivered your way through the cold breeze and toward your vehicle dreaming of the moment you were able to turn the temperature dial from blue to red, or maybe you just ran back inside to change into something warmer?
Whatever you chose, I’m guessing you did it while thinking something like this:
“The forecast said it would be another scorcher, why in the world is it so cold? Those weather anchors are always getting it wrong!”
Don’t worry, I only know this because I’ve been there too, and quite frankly, just about anyone who’s relied on any sort of forecast for something has been there with us.
Forecasting uses a specific set of tools to analyze your current and historical data to predict future trends. It’s a complicated process, and the more variables you have, the more convoluted it can get.
Sales forecasting is no different.
While spreadsheets can handle a lot of variables (i.e. lead times, transfer obligations to other distributors, production schedules, etc.), managing all those inputs consistently can get tedious and cumbersome.
If there aren’t enough variables though, relying on a spreadsheet that’s too simple can be like having a thermometer and taking your best guess on how it’s going to feel outside.
On the other hand, having a Route Accounting Software (RAS) that accesses your historical sales and real-time inventory levels from your Warehouse Management System (WMS) while still factoring in all your other variables can be like having a thermometer, barometer, anemometer, satellites equipped with radar, and weather balloons floating overhead.
Embracing The Variance
Even with the best software out there, a forecast isn’t a crystal ball. Most of the time they are expected to be spot on, but in reality, there will always be variance between the forecast and your actual sales.
While you can’t escape the variance, you can track it.
Using the forecasting tool in your Route Accounting Software gives you visibility into your forecasted versus actual sales without any extra effort. Studying these variances will give you insight into the nuances of how your market responds to new products.
Identifying SKU’s That Consistently Miss The Mark
First we need to assess which SKU’s are off, by how much, and some possible reasons they’re not hitting the target.
Start by reviewing your forecasted versus actual sales report for the same period. Next, run it for a previous period, then another, then another, and see if you can spot any trends on SKU’s that consistently miss the mark.
If you aren’t able to do this because it takes too much time to compile the data to create the reports, we’re here to help. Once you do have this sort of visibility, you can start to figure out which SKU’s more than likely need their forecasting method re-evaluated (and yes, there are more models than just sales ÷ inventory).
If you want to see 4 forecasting models we’ve used to help improve the sales forecasts of 200+ beverage distributors, keep reading!