Feature Article
Improved forecast accuracy becomes a huge profit driver.
Most Finance teams understand and readily admit that improvements in forecast accuracy, especially at more granular levels, can deliver huge revenue and margin impacts to their organization. The challenge is, many view these projects as being a resource-intensive commitment to achieve these goals. Whether it be labor, capital, time, or frankly all the above, there is a general fear that these are huge undertakings. The truth is, many of our clients see >20% accuracy improvements, in time frames ranging from a couple weeks to a couple months, while integrating directly with their existing financial planning systems in a completely automated fashion. This is especially true for TM1/Planning Analytics clients due to the inherent flexibility of the platform.
But before we get too far discussing the upgrades, we should cover a few baseline financial benefits:
- Improved revenue and gross margin plans – It is easy to maintain accuracy at a summarized forecasting level, but how often do organizations fall in line on revenue expectations but woefully miss profit projections? This is largely due to missing the all too common shifts in the underlying product mix within a grouping or breaking out stores within a region. Frankly, surprises in the positive or negative direction have tremendous impact on your organization, as expenses and other investments should ultimately be aligned with revenue opportunities.
- Alignment of investment expenses – We alluded to this in the previous example, but too many organizations do not view expenses as a strategic investment, which they are. Too often, expenses are minimized as the cost of doing business, when they often serve as catalysts for growth. Aligning your investments in labor and real estate in a growing region or aligning marketing investments with growing product lines are incredibly important. Equally important to the alignment of these investments is the timeliness. The more visibility organizations have into this level of detail, the more agile they can be.
- Reduced costs associated with inventory – Direct inventory cost reductions are clear impacts of an improved forecast. Reduced carrying costs of excess inventory and freeing up space in warehouses or DCs are clear benefits, but there are other considerations like reduced pricing pressures associated with moving unproductive inventory. Each of these costs are significant to the bottom-line, and the benefits are additive to the top-line impact of better alignment of inventory and customer demand. The sales and customer satisfaction impact of broader coverage and increased product availability is somewhat immeasurable.
Our existing customers benefited from these improvements in the following ways:
- 100m annual increase in gross profit
- 20-50m reduction in waste
- 40-60% increase in accuracy
- 33% increase in sell-thru
- 40% reduction in planning hours
- 7% increase in inventory returns
Getting started is easy. Our standard POC takes 1-2 weeks and requires minimal client involvement. If you are interested in incorporating AI & Machine Learning into your forecasting process and deliver these benefits and more, click here to learn more about our complete predictive demand planning solution.
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