Sales forecasting for manufacturers has always been critical, but can sometimes be tricky. If you’re a manufacturer, sales forecast data integrity is even more critical since it used to generate plans in all aspects of the business including manufacturing scheduling, inventory management, product positioning and placement, production planning, manufacturing scheduling…even budgeting, cash flow, expansion, investments for capital equipment and raw materials purchases. For your Operations Organization, these forecasts are used as an input into demand planning to:
- Maintain inventories of finished products
- Plan for replenishment of raw materials and other items
- Plan for production and capacity
This is the reality…Supply Chain must procure the correct level of raw materials to manufacture an assumed amount of finished goods, given there is market demand for these goods. In turn, a sales forecast will predict how many units will be sold in a given time period. Based on that, the company will purchase enough raw materials to manufacture those units.
This is the conundrum…If your sales forecast is too gregarious, you’re burdened with units you must carry/inventory instead of selling…unfortunately you are still stuck with the raw materials that you already paid for that were required to produce this overstock. Conversely, if your forecast is too conservative, you won’t produce enough units resulting in a backorder situation and possibly having sales orders cancelled or even worse, having your customer drop you as a vendor. Obviously, this scenario creates an “organic rub” between sales and supply chain/demand planning, especially when confidence/trust in the forecast accuracy is low. The solution is having a more accurate & timely forecast whereby sales will be able to hit their revenue targets and the factory can:
- Build the correct product mix
- Lower On-hand inventory levels
- Reduce unfulfilled backlog
- Reduce Inventory obsolescence
- Improve lead times of finished goods and its components
CRM & Forecasting
By now, you should be getting the message that forecast accuracy is key…and CRM systems can help with this. Having a forecast module in a CRM system is a must for manufacturers. Since it is used every day, CRMs allow sales reps to review the buying behavior and precise/accurate analytics on each account to provide a real-time dimension to the historical data resulting in more concrete and reliable sales forecasts. Incorporating info generated by the CRM can give the forecast a more accurate perspective of true demand as you’re getting as close to the customer as possible. Forecasts based on analytics such as “average closing ratios” and “average time for a sale at a particular stage of the sales process” (allowing a much more precise calculation of risk-versus-reward for each sale) tend to be more accurate than methods based solely on an educated guess.
Marketing and sales organizations prefer to plan forecasts in dollars (revenue) and conversely, production needs to plan in units. Ultimately, for products to be available when the customer needs them, you need to develop a forecast by product in units. However, your sales forecasting system should be flexible enough so that it can aggregate demand to different levels of details in units and in dollars to satisfy company-wide needs.
Forecasting in CRMs enable:
- Automation of a role-based data entry process by linking the opportunity pipeline to the forecast increasing accuracy. Sales reps can better evaluate what customers may purchase as they cultivate real-time opportunities. These sales forecasts are available by customer account and can be viewed via a Sales Dashboard.
- With organization-wide usage, it will allow Sales and Demand Teams to collaborate in real-time on forecasts. It also enables the option for end-user customers and sales partners to view/input forecasts via a self-service portal.
- Reporting that can provide a clear picture to senior management as to how actual results compare to the sales forecast.
- Since CRM usage is daily, it allows the forecast to be measured and reviewed frequently, which in turn, fosters better accuracy – WHICH IS A MUST!