Forecasting

Forecasting is about predicting future events based on a foreknowledge acquired through a systematic process or intuition (Armstrong JS, 2001). Forecasting, if done accurately provides many advantages such as better financial planning, better staffing, targeted markets etc. (The Advantages of Accurate Forecasting. , n.d.)..

Forecasting where on one hand can provide a business advantage on the other hand a poor forecasting can have a serious business implication. Forecasting is difficult (if not impossible) to do accurately.  Key assumptions required for good forecasting are not always evident, and key metrics are not always clear (Score ,n.d.). In the absence of a clear path by which a forecast might be developed, many entrepreneurs gloss over it. I will try to focus on supply chain management poor forecasting implication to the business.

Inventory/working capital is the most direct casualty of poor forecasting efforts. Because forecasting is typically a result of the sales data driven estimates, and overestimating sales can often cause high resulting levels of inventory (working capital), and therefore, reduce the company’s profit in the end.

Expedites / Missed Revenues, If the sales forecasts are too conservative on components for use in manufacturing, it might result in missing revenues altogether. Expediting costs can also arise during up markets where growing demand outpaces the supply chain’s ability to deliver parts on time.

Supplier Relationship Deterioration Poor forecasting is not exclusively an internal issue. Relationships with suppliers can be significantly deteriorated by poor forecasting and can have a further impact on a company’s supply chain down the line.

Internal Administrative Costs, the forecasting efforts comes at a cost as there are dedicated teams allocated for the purpose. Failing to predict/forecast properly can result in admin overhead and can also impact the company employee values propositions.

References

Armstrong JS (2001). Principles of forecasting: a handbook for researchers and practitioners. Norwell: Kluwer Academic Publishers;.

The Advantages of Accurate Forecasting. (n.d.). Retrieved January 26, 2017, from http://smallbusiness.chron.com/advantages-accurate-forecasting-60830.html

Score (n.d.). How Poor Forecasting Can Sabotage Your Business Plan. Retrieved January 26, 2017, from https://www.score.org/resource/how-poor-forecasting-can-sabotage-your-business-plan