You may be thinking you need a forecasting system, but are intimidated by the cost. The IBF (Institute of Business Forecasting) has stated that a 15% improvement in forecasting accuracy leads to a 3% or higher pre-tax dollar improvement. For a $100 million company, this is a savings of $3 million! In this article, we will explore the ROI of a forecasting system.
The realization that a forecasting system is necessary is often driven by:
- Disjointed data/need for more efficiency – the process of collecting and organizing the data vital to making good demand forecasting decisions is time-consuming and inefficient. Due to the size of the spreadsheets, it is difficult to glean insights quickly and accurately.
- Forecasting accuracy challenges – some companies may find that their forecasts are not accurate, resulting in overstock or stock-out situations.
- Inventory problems – the company may be in an overstock situation and needs to analyze their business and reassess their product assortment.
- ERP is not meeting needs for forecasting and sales analysis – ERPs are excellent tools for bringing information together and forming a process for all areas of a company. However, ERP focus is often not forecasting and sales analysis and many companies need a more robust tool for these purposes.
The costs of a forecasting system vary greatly from system to system. The need for a more expensive system is contingent on the size and/or complexity of the business data.
Here at SAFIO Solutions, our clients typically see ROI within 12-18 months. These businesses realize both direct and indirect cost savings, as described below:
Direct Cost Savings
- Optimized inventory levels result in reduced carrying costs
- Increased revenue due to fewer missed sales
- Decreased shipping costs due to fewer rush shipments
- Lower markdowns and obsolescence due to having fewer overstock issues
- Increased inventory turnover
- Increased efficiency in planning process
Indirect Cost Savings
- Better financial planning due to the visibility a forecasting system offers its users
- Warehouse efficiency increases because a forecasting system can determine optimal product placement and provides guidance for personnel scheduling for shipments and receiving
- Production efficiency increases due to prioritization and batching of job orders
- Human resource costs may decrease due to efficiencies gained through use of a forecasting system in cross-functional areas of the company
- Sales and Marketing Teams gain insights into sales trends quickly, giving them a competitive advantage
When you look at the ROI realized by companies who implement a forecasting system, as well as the increases in efficiency gained throughout the organization, it only makes sense for companies to consider a robust forecasting system.
At SAFIO Solutions, we help companies achieve increases in efficiency and the bottom line. For more information about how we can help you, check out our website!