Driving down an unfamiliar, dark road at night can make even the best driver apprehensive. Unexpected turns or hazards can appear quickly and without much warning, leaving limited time to adjust course. In the same way, forecasting a company’s performance is similarly fraught with unforeseen events that alter the trajectory of any estimate, conservative or aggressive. It is assumed that business as usual involves constantly dealing with the unknown of tomorrow without a system to track what will happen next. The prevailing attitude is that it simply isn’t possible to analyze, predict, and anticipate every single phenomenon that will affect the business.
The difficulty in accurately predict demand
Most business leads have sat in review meetings where they try to explain missed targets – often second guessing current strategy, citing anecdotal feedback from customers, or speculating on changes in the economy or weather. Indeed, when most Fortune 500 executives comment on missed forecasts, they focus on the unexpected phenomenon hitting their business, such as a drop in oil prices, or a stronger dollar – often with limited proof.
Ignoring external factors have hurt countless companies because the most commonly used forecasting methods are based almost solely on internal historical performance data. These methods also use time series statistical models, which have been in use for the past century. Time series models work well if the economy is stable. But as industry leaders know Digital Transformation is underway, leading to sudden turns in the market as new technologies become available. As a result, time series models are becoming less and less effective in their ability to account for these changes. Traditional forecasters attempt to compensate by sprinkling in secondary sources of information, such as anecdotal feedback, speculation, and educated guesses. Yet these insights only contribute so much towards future predictions, because they are internal facing, and don’t consider the current external factors impacting the business today. And traditional forecasts aren’t inspiring much confidence – only 12% of executives feel highly confident in their forecasting processes.
The benefit of predicting demand accurately
Cutting through the uncertainty and identifying external factors relevant to a business provides significant benefits, as intelligent, cost-saving adjustments are made at the speed of business across an organization. Operations can be adjusted intelligently as demand in different geographies arise. Financial forecasts can be accurately tuned by business and region. Marketing campaign efficacy is forecasted. And top level leading drivers specific to each unique company allow for strategic adjustments on the fly.
Above all else accurate insights to influence forecasts preserves already slim margins, as global events can render misallocated resources and excess warehouse storage costly anchors to a business. Even the smallest improvements can make a big difference. A recent study by the Institute of Business Forecasting found that improving demand by even 1% among companies with $1B in annual sales showed a $5.5M to $8M improvement.
Closing: Achieve more accurate forecasts
To stay ahead of changes in a volatile global economy, investing in accurate, data-driven insights for accurate forecasts is an important step in business leader’s digital transformation journey.
Prevedere, an industry insights and analytics company, has partnered with Microsoft to provide actionable data driven insights at the speed of business. Their patented analytics engine (using Microsoft technology) enables industry leaders to monitor global economic and industry activity to forecast future demand spikes and declines 12 to 24 months ahead of the competition.
The Prevedere Demand Forecasting for Manufacturing solution is just one example of how Microsoft and its partners are providing a suite of solutions to advance digital transformation. To learn more about Prevedere Demand Forecasting for Manufacturing, try the demo on Microsoft AppSource, or contact a sales representative.