As the market gets more competitive and cash gets more precious, companies are beginning to take all aspects of their business into consideration. In particular, business planning and forecasting is getting a second look because accuracy in this area can dramatically improve the results of the firm. Better planning leads to better cash flow and profits because there is less waste and errors. Companies are using new technology and software solutions to get to the desired results.
Planning & Forecasting for Production
Production of products is not a guessing game. Overestimating or underestimating the demand for a product can lead to excess inventory or, for the latter, a loss of sales to a competitor. For example, large manufacturing firms need to start the process of materials requisition far in advance of the actual sale to the end consumer. That means there is a critical need to forecast correctly and a high potential of excess inventory or lack of inventory for high demand products.
Automobiles are the classic example that need a long lead time for production and sales. Ford may estimate that the economy will grow slowly in the next year, but it is hard to guess whether people will buy hatchbacks, SUVs, roadsters, minivans or other vehicles. Most likely, they will take into account current trends and extrapolate forward. They ask suppliers to begin building the requisite parts for the next year and the suppliers request the raw commodities that are needed to build the parts. Assembly takes time as well as the various logistics components. The entire process may take over a year until the vehicle is finally sold.
Using a Business Planning System for Accuracy
Due to this incredibly complex series of moving parts, companies need to have as accurate a business planning system as possible. The only way to do so is to use technology. Software applications help companies create dynamic forecasting models that provide the most efficient and accurate ways to forecast. What is important to understand is that there is management of the business side as well as the customer management, and pulling that data together for cohesive data to plan and forecast accurately.
Enterprise Resource Planning (ERP)
Enterprise Resource Planning (ERP) focuses on the business and improving the efficiencies of the business process. In particular, companies apply the data and guidance from their ERP systems to build up their forecasting platforms. ERP systems are helpful because they include all the inventory, the logistics information and the production schedule. When these are combined effectively, they provide a coherent view of the business.
Customer Relationship Management (CRM)
Customer Relationship Management (CRM) records and stores all information relating to customer interactions. CRM can be used to create sales projections, to maintain contact with customers, as well as providing shipping address verification and billing. The CRM system helps the company understand future sales and the places where resources will have to be allocated to serve the sales based on the interactions and sales recorded.
For that reason, the best forecasting tool is not a stand alone solution based on the results of previous years or a projection based on the overall economy. Instead, it takes into account the actual potential clients in the CRM system. It also takes the real inventory levels that are in the ERP system.
Systems, Applications and Products (SAP)
SAP ERP combines data from separate modules including marketing and sales, product design/development, production and inventory control, field services, human resources, finance and accounting. SAP BusinessObjects is a business intelligence suite of front-end applications that allow businesses to sort and analyze their data. The reporting capabilities and custom dashboards available, work with your current ERP and CRM systems, or can be combined with the SAP ERP software to allow the data to be analyzed for cohesive and strategic planning and forecasting.
The right software tools means that valuable data can be extracted, reported, and analyzed--so the company doesn't order supplies that it does not currently need. This saves a huge amount of cash flow. If the funds were borrowed to purchase the inventory, their forecasting tool will help save financing costs. Also, if purchasing is done to supplies that will go to waste, that also causes a huge headache and expense. In either case, the right software helps much more money flow to the bottom line. Companies now believe that investing a little bit in building a customized business planning system is well-worth the small cash outlay. The returns are much greater than the original cost.
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