5 Ways ERP Forecasting Can Improve Business Efficiency
Some years ago I was “volunteered” to improve my employer’s ERP forecasting. It was an interesting learning experience. Some of the Greek words from college statistics classes began to make sense and a few even remained in my vocabulary. A mentor of mine once cautioned that there is a basic truth in any forecast, “they are always wrong”. He was right that no forecast will be perfect but with some effort, experience and maybe, with the help of good statistical software, one can get a lot closer than any guess.
The most common ERP forecast will use past data to develop trends which can be extended to the future. Any ERP system is full of past data. Every transaction has been captured and these can be extracted and analyzed. So what areas can this data be used to fuel ERP forecasting and improved efficiency?
1. Demand Forecasts
What orders can you expect over time periods? You can forecast by customers, products or geography. Any of these can show seasonality. You should be looking at a sales pipeline from your CRM and predict which quotes will convert to orders and when that might happen.
Recommended Reading: ERP Software Guide - Compare ERP products with forecasting capabilities
2. Financial Forecasts
You should try to predict revenue and costs through ERP forecasts. These become a budget. You can also predict capital requirements in the future based on shop load from our ERP combined with future product demands. Financial forecasts are also essential when working on long-term projects with customers. Costs will change and your initial quote should take this into account.
3. Job Scheduling
Although not traditionally seen as an ERP forecast, job scheduling relies on analysis of previous job data and a reaction to this analysis. You should know how long each operation will take based on engineering standards or past history. Without ERP forecasting you cannot simply expect a production job to be at a work center at 10:14 PM and arrange for components to be on hand at exactly that moment.
4. Supply Forecasts
You should look at your supply chain and predict when materials will arrive. You already have a stated lead time from your supplier. You have data on the elapsed time for delivery in the past. You could look at shipping schedules, weather reports and union strikes within your ERP allowing you to predict when it these materials will arrive.
5. External Forecast Integration
Not only do you have our own ERP data to analyze but you can add all kinds of external data looking for correlations and a basis to possibly improve our forecasts. Governments all have a variety of indices they publish. The Dow Jones has a long history and many forecasts of its future value. Scientists predict El Niño weather and global warming. These and many other data sets can be integrated with your ERP forecasting.
And if all that doesn’t give the results you hope for, we can always use our Ouija Board! Nils Bohr told us “prediction is very difficult; especially if it is about the future”. Your ERP forecasting is there to make these predictions a little easier.
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