What is ERP Software?
ERP Software is an integrated software that automates various routine tasks across an organisation and provides a unified system of information management through a centralised database for real-time information sharing & collaboration.
ERP minimises data entry and provides decision-makers with access to all the information at their fingertips. Its reporting and analytical tools help decision-makers make strongly data-driven decisions to increase revenue stream and foster growth & success.
What is Sales Demand Forecasting?
Sales Forecasting is the process of analysing historical records, past sales, current market conditions, and consumer buying patterns, to predict demand for the company’s goods and services. It is a crucial process that enables businesses to fine-tune their strategies and align the organisational resources to meet the current market conditions.
Sales Forecasting allows decision-makers to get a clear picture of the sales pipeline, and allocate adequate resources to plan the production activity and compare Projected vs Actual. For example, a computer manufacturer company can use sales forecasting effectively to ensure it uses the fullest manufacturing capacity to precisely meet the demands on time. Without demand forecasting, the company faces the challenge of losing potential customers.
What are the Common Challenges in Sales Forecasting?
Sales forecasting is a complex procedure that is prone to errors. Let us discuss some of the challenges in this process.
1. Changing Market Dynamics
Market conditions change from time to time. Demand forecasting relies on historical data analysis. However, there are dozens of other factors such as availability of substitutes, consumer income levels, price elasticity, weather conditions, and new market trends, that influence consumer’s buying decisions.
2. Market Complexity
Another challenge in demand forecasting is that the market is often complex with so many interconnected and complex factors. Demand Forecasting involves analysing each of these factors. If the analysis of any one factor is erroneous, it can negatively impact the final analysis.
3. Resource Availability
Medium and large companies have adequate resources to analyse market factors and determine the demand for their products. Small companies lack the money and human resources to perform a thorough and realistic market analysis.
4. Qualitative Data
While forecasting sales, two types of data are needed to be taken into consideration – quantitative and qualitative data. A negative brand review on the Internet can lead to sudden drops in demand. Such qualitative data are part of the subjective analysis, and it is difficult to measure their impact on sales.
5. Data Obsolescence
It’s a known fact that data is the new oil for modern-day businesses. Small companies often lack access to real-time and most important data. Relying on outdated data can cost heavily. It can lead to overestimation of demand, missed sales opportunities, inefficiencies, and inaccuracies at higher decision-making levels.
How Do ERP Solutions Enhance Sales Forecasting?
There are several ways an ERP can benefit your business in analysing demand for your products and accurately forecasting future sales.
1. Advanced Analytical Algorithms
ERP comes with powerful data mining capabilities. It consolidates data from different departments and sources and uses its advanced analytical algorithms, ad hoc reporting tools, and statistical analysis to help decision-makers gain competitiveness & become agile in market conditions.
2. Data Visualization
The use of ERP in sales and marketing allows decision-makers to gain a comprehensive view of the business operations and actionable insights for seamless decision-making. Achieving targets and closing sales quickly become easier as the business becomes proactive rather than reactive.
3. Tailored Capabilities
The makers of ERP have a deep understanding of the requirements of each industry. ERP’s industry-specific capabilities align with your latest industry needs and empower your business with the right tools to support rapid growth.
4. Sophisticated Risk Management
Risk identification and mitigation is one of the crucial business activities to avoid negative consequences. ERP’s ability to accurately forecast sales allows businesses to plan production, sales, and marketing activities strategically.
5. Data Integration
ERP consolidates data from numerous sources and integrates deeply with your existing systems. It allows decision-makers to gauge the performance of marketing & sales activities, set targets, and measure the performance over a while.
Steps in Sales Forecasting Using an ERP
Now, let us understand the various steps involved in the sales forecasting process with a comprehensive ERP:
1. Set Objectives
The first step in sales forecasting is to determine the objective of your forecasting. For example, are you looking to perform better financial planning and stay ahead of the competitors? Or do you want to measure the inventory capacity and minimise cash flow issues? You will need to define your targets and set up teams who will conduct this process.
2. Determine Analysis Period
The next step is to choose a period of analysis. Do you wish to conduct a short-term analysis that lasts only a few months? Or do you wish to conduct a medium-term analysis that lasts from a few months to a year? Or do you wish to conduct a long analysis that lasts for many years? Choosing the right period is critical.
3. Choose a Forecasting Method
There are several sales forecasting methods, each with its pros and cons. The qualitative methods include conducting surveys, market research, and seeking expert opinions. The quantitative methods include analysing historical data, finding anomalies, trends & patterns, calculating Moving Average, and exponential smoothing. You can choose either one method or a combination of different methods.
4. Data Assessment
The final step in sales forecasting is to assess the data through a thorough statistical analysis and segment it by different demographic factors. You will also want to know about the possibility of unexpected future events that may occur and impact the quality of your analysis. You will need to make plans to mitigate such uncertain risks.
Wrap Up
Businesses across the world are replacing traditional tools with ERP due to its revolutionary benefits. It uses a multi-step operational process for timely & accurate sales forecasting and empowers businesses with modern tools & analytical capabilities.
Sage X3 is an indispensable tool that enhances the quality of data analysis and eliminates siloed work. Its wealth of modules allows decision-makers to build carefully developed sales forecasts and plan for future growth & success.