Businesses can attain greater control over inventory costs and profitability by forecasting production. To be profitable, you must aim to carry the least amount of inventory while maintaining enough on hand to satisfy demand. If demand were always consistent, purchase orders to vendors would always be the same and profitability would be steady. But many businesses face seasonal changes in demand that require inventory quantities be adjusted.
The past few years have taught us an important lesson – expect the unexpected. If everything were predictable, businesses could stick to order the same quantities in the same increments with every purchase order. Recent supply chain disruptions due to health, political and economic upheaval have presented continuous challenges to the average business owner. Staying on top of those changes and making plans to react to them is the key to survival and prosperity.
Forecasting in Manufacturing: The Basics
Using historical performance information, a company can predict demand based on seasonal highs and lows of previous years for products they’ve sold in the past. Predicting newer product performance is a bit tricker and will require research into similar product performance in the industry.
Predicting future demand entails MRP forecasting – planning the manufacturing resources required to produce those products. If a manufacturer of ski equipment expects a 20% increase in sales in November, they can also determine how much more raw material, labor and costs will be required to produce that extra 20%. Forecasting production rather than reacting to changes in demand permits the business to be prepared and meet that demand without overspending to store overages or miss out on sales due to shortages. But note that forecasting is akin to predicting the future; no matter the acuity of the tools you use to predict it, things don’t always go as planned. While forecasting production software features offer distinctive benefits, good communication with your customers at all times cannot be replaced by the shiniest crystal balls.
Detailed reports facilitate educated decision making about future production. They are important forecasting production tools for examining what happens at every stage of production and noting trends in material usage, waste, costs, labor and overhead, so you’ll have the full picture of what needs to be done to prepare for a similar change in demand. SOS Inventory provides over fifty different types of customizable reports to make every aspect of your business transparent and easier to manage.
What are different types of production forecasting?
Trend-based: If growth has been consistent month over month, examining that trend to determine the average growth each month allows the business to estimate demand in upcoming months, assuming the same buyer behavior.
Pattern-based: Seasonal changes such as an increase in winter clothing sales in the cold weather is predictable based on fluctuations during the previous season.
Cyclical: Increases or decreases in demand based on the economy will come and go over longer time periods. Using industry data and forecasts can assist in making decisions about upcoming changes.
Production forecasting is not without fault; if turmoil suddenly disrupts your supply chain, you may face shortages or purchase materials at a higher rate from an alternative supplier. Forecasting lets you properly plan how you run your own shop floor but cannot anticipate every hardball coming your way. Taking climate, economy, political upheaval, and health challenges into account and establishing good communication with suppliers will help you react quickly as your supply chain faces disruptions. Naturally, you should keep an eye on what your competitors are doing and stay abreast of any new technology that can make your business more efficient.
SOS Inventory gives you complete end-to-end control of your business so forecasting production and implementing changes to meet anticipated demand is easy to implement and track. Ultimately, planning production to optimize inventory levels will save your company on waste and storage fees while generating enough finished product to meet demand and maintain high quality. Having the right software can make all the difference. Why not get started today?