Forecasting demand is never easy; here are some tips for making the process work for you.
It's 7:00 p.m., and your favorite restaurant has already run out of the day's special entrée. You wonder, didn't they expect it to sell? Another time, you save money at the "end of season blow-out sale." The cool summer slowed swimming suit sales, and while the store is clearly losing out, you are the lucky bargain hunter, paying less than half the original price.
Restaurants and clothiers are not the only ones to suffer from the challenges of predicting demand for goods and services. Whether selling back-to-school items or greeting cards, service calls or insurance, businesses need to be able to confidently forecast demand. It's essential: Having a good idea of what's coming may improve customer service, but it can also make a big difference in sales and profits.
Where do you begin? There are nearly as many ways to forecast as there are business owners. Some companies forecast informally - a gut feel, or a few numbers scratched on the back of a cocktail napkin. Some pay statisticians to work with expensive software to develop predictions of the future. Regardless of method, few forecasts are ever right.
The issue is not getting an accurate forecast; the issue is getting one good enough for the decisions at hand. It must be worth more in the information it provides than it costs to develop. So how do you do that? Software alone is not the answer, and may not be the answer at all. As you work to improve your ability to see the future, consider these four key steps to shaping a forecasting strategy that will work for your business:
First, understand your business.
Develop a relevant forecasting process.
Understand how the forecast will be used.
Choose an appropriate model.
Forecasting demand well enough to enable better planning and decisions is important to most businesses. These considerations can help you get closer.
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