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Why Companies That Forecast Well Will Win 2024

Published Date

Estimated reading time: 5 minutes, 50 seconds

(Image Source: Song_about_summer/Stock.adobe.com)

Published August 22, 2023

The ability to forecast accurately is integral for procurement professionals in the industry, impacting decision-making, cost efficiency, and sustainability. It seems, though, that companies often grapple with challenges while trying to improve their forecasting abilities. This is a critical aspect of success and, if done effectively, will produce a "winning" effect in the year to come. It's never too soon to start thinking ahead.

Challenges

Forecasting is a complex process with challenges that often deter companies from achieving optimal efficiency and accuracy. While forecasting 100% of production quantities and dates is not common—let’s face it, things come up—the ability to better organize your schedule can lead to better overall costs and planning. This ability is rooted in fine-tuning your process of making future decisions based on past and present data, as well as taking industry trends into consideration. Of course, there will always be obstacles to overcome.

A significant hurdle lies in poor customer forecasting, a frequent issue among electronics manufacturing services (EMS). This lack of clarity in predicting customer demand often leads to inefficiencies and inaccuracies in the overall forecasting process. Software-related challenges, such as the inadequacy of trend reporting and order flow management capabilities, exacerbate these complexities. The unpredictability of demand for new designs further compounds the problem, making it hard to accurately plan procurement and production schedules. Additionally, sourcing materials from multiple vendors often obscures buying trends, making it even more difficult to discern a clear, actionable pattern. These obstacles collectively represent a formidable challenge for companies striving to refine their forecasting abilities.

Benefits

When done correctly, accurate forecasting can transform company operations. One of the most compelling advantages is cost reduction. By predicting demand, buyers can optimize their purchasing strategy, avoiding overstocking and last-minute orders that tend to come with inflated prices. This efficiency translates to substantial savings in procurement costs.

Another advantage of precise forecasting is better vendor relationships. By providing reliable estimates of future demand to suppliers, firms foster trust and collaboration, which can lead to more favorable terms, potential discounts, and incentives.

Improved sustainability is yet another benefit of accurate forecasting. By closely matching supply with demand, companies avoid overproduction and waste, contributing to environmentally friendly practices. Efficient inventory management prevents shortage issues that could lead to production line halts.

Accurate forecasting empowers companies to demonstrate resilience in the face of uncertainties. Whether it's market fluctuations, changing consumer trends, or unexpected global events like a pandemic, companies that have honed their forecasting abilities can adapt more swiftly and effectively. They can anticipate changes and adjust their strategies, ensuring business continuity and competitive advantage. In essence, accurate forecasting is a critical factor for success, especially in an industry as dynamic and competitive as electronics.

Am I Doing It Right?

If you're wondering if you're set up for success in 2024, ask yourself these questions:

  • Are you often paying more than you should for parts due to last-minute or just-in-time (JIT) buying? Is this eating into your profit margins?
  • Are you consistently struggling with lead times? Are late deliveries from suppliers causing disruptions in your operations?
  • Do you frequently face part shortages or have difficulty getting the parts you need when you need them?
  • Are you regularly finding yourself with overstocked items? Are you ending up with parts you don't need and can't return?

If you answered yes to any of these questions, it may indicate inefficiencies in your forecasting processes that you need to address. By identifying and rectifying these issues, you can improve the accuracy of your forecasts, leading to more efficient operations and better financial results.

Set Up for Success

To mend forecasting inefficiencies or simply reach further to excel, it's vital to adopt advanced strategies, innovative technology, and remain adaptable to external factors. Here's how you can do it:

Embrace Artificial Intelligence and Machine Learning

Artificial intelligence (AI) and machine learning (ML) can enhance forecasting, helping to facilitate real-time data availability and enable smarter buying decisions. AI and ML can help analyze complex data sets and detect patterns, allowing procurement pros to foresee market trends and adjust purchasing strategies accordingly.

Recognize the Signs

Identify any signs of forecasting inefficiencies in your organization. Are high costs for JIT buying affecting your profitability? Are you facing issues with lead times and part availability? Are you overstocking due to poor forecasting? By recognizing these signs, you can pinpoint the areas in your forecasting process that need improvement.

Learn from the Pandemic

The COVID-19 pandemic has had profound effects on forecasting. Manufacturers struggled to regain capacity, thereby placing more importance on accurate forecasting. With lead times pushing out so far, it became imperative to plan needs out months in advance, and in some cases, over a year in advance. Though lead times have started to even out, companies that accurately forecast their needs help manufacturers plan better, ensuring a more focused and efficient supply chain.

Stay on Top of Industry Trends

Keep an eye on significant electronics industry trends and incorporate these into your forecasting. Such trends include APIs, environmental compliance certifications, total cost considerations, multi-language chat support, and demonstrating agility in forecasting and planning. Staying attuned to these trends will help you future-proof your operations and stay competitive.

Strengthen Supplier Relationships

Accurate forecasting can enhance your relationships with suppliers. By providing suppliers with reliable estimates of future demand, you may be able to extend your terms as needed to support your business as your product needs increase, potentially leading to discounts and incentives.

Build Resilient Forecasting Models

Work toward creating a forecasting model that's not just accurate but also flexible and resilient. This includes focusing on strategy, employing skilled personnel, using automation tools, relying on reliable data, developing key performance indicators (KPIs), and strengthening vendor relationships. A robust model can withstand market uncertainties, and with the right team and tools, can efficiently guide your procurement process.

By adopting these strategies, you'll be well-equipped to fix forecasting inefficiencies and drive your company toward success in 2024 and beyond.

…And You’re Off!

This journey through the complexities and challenges of forecasting in the electronics industry illustrates a clear path to success. Accurate forecasting is not a luxury but an essential tool in this fast-paced and volatile industry. From identifying forecasting inefficiencies—like high JIT buying costs, issues with lead times, and overstocking—to understanding how the COVID-19 pandemic has emphasized the need for precise forecasting, the narrative is consistent: Accurate forecasting is pivotal.

As we approach 2024, it becomes increasingly clear that the winners in the electronics industry will be companies that have not only understood the importance of accurate forecasting but have also implemented measures to ensure their forecasting is as precise as possible. The rewards are manifold: cost savings, improved supplier relationships, operational efficiency, and increased competitiveness. Indeed, companies that excel in forecasting will lead the pack in 2024, navigating the future with insight and confidence.