Supply Chain Management: Sales Forecasting Methods and Best Practices

Depending on who you are speaking with, and the context of your conversation, sales forecasting can mean A LOT of different things; a salesman thinks in terms of units and revenue, accounting pro’s think in terms of budget and corporate financial planning etc. The group of people who are most often left out of these conversations entirely? That would be the supply chain management professionals and supply chain planners.

There are numerous methods, strategies, and best practices for supply chain management; this blog will speak to a few of them, but don’t miss the link at the end to a comprehensive white paper we wrote on the subject! The white paper elaborates on a few of the items in this blog and gets into a much more detailed discussion of these strategies, best practices, and how this all factors into MRP/MRP.

But in the mean time…

There are four primary ways to develop sales forecast that are directly related to who is exactly is in charge of the prep:

1. Sales Rep Forecasts - In some industries, the best people to create your sales forecasts are in fact the sales reps who are selling the products. The best approach is to link your sales forecast in your CRM system to your ERP system for supply chain planning. Realize that some sales reps will be very good at forecasting demand while others may not be as accurate in respect to expected close dates or units.
2. Financial Forecasts - As mentioned, accounting managers typically look at sales forecasts strictly from a financial perspective or in respect to budgeting. As a best practice, finance, sales, and supply chain management should collaborate on forecasts to meet each departments needs. Financial forecasts are important to the supply chain planner and buyer as budgets do have a direct impact on their ability to staff up when demand spikes (overtime), layoffs when demand is light, or for capital expenses for new machinery, tooling, or other resources to meet forecasted demand.
3. Supply Chain Forecasts - Supply Chain forecasts are developed by material planners and/or buyers. These supply chain management professionals have a deep understanding of supplier relationships and internal manufacturing processes that affect their ability to deliver products to customer’s on-time. Planners are in tune with recent shifts in demand and have the experience needed to develop forecasts based on practical, real world experience. 
4. Statistical Forecasts - In many cases, previous history is an indicator of future demand. Systems are available to analyze demand history by item, by customer, and by period to predict future demand for those items taking into account growing product lines, declining demand for products, and fluctuations in demand for seasonality and marketing promotions. Statistical forecasting isn’t right for every company but it may be the best option for your company.

Forecasting Best Practices

Forecasting is not an exact science, but there are a few things you can do to help yourself such as:

• Keeping accurate and complete data remember the good old phrase, “garbage in, garbage out!”
• The more data you supply the statistical forecasting system – the better. 
• Sample Size: If your data is seasonal, it is particularly important that you have adequate data length or duration. 
• Manual Intervention: Forecasts are never perfect, If you have knowledge of upcoming events or happenings that will cause a big push, then you should adjust the forecasts judgmentally.

To get even further into this topic we put together a complete guide to sales forecasting from a supply chain management perspective and continue on into how your sales forecasting will factor into MRP & DRP. Download the white paper at no cost here

About e2b teknologies:
e2b teknologies operates three business units – e2b anytime apps , e2b enterprise, and e2b calibration. e2b enterprise develops custom cloud-based business applications and resells leading ERP accounting software, CRM, HRMS, and other enterprise business software applications from Sage Software, Epicor, Intacct, Sugar CRM, and other publishers. e2b anytime is the publisher of Anytime Collect, Anytime Assets, Anytime 500, Anytime Commerce, and related Anytime brand products. e2b calibration is an ISO/IEC 17025 accredited calibration and repair laboratory providing a full scope of services (traceable to NIST) for most popular calibration, test, and measurement instruments.

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