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November 2018

forecasting fpr small business

What is Sales Forecasting and How Does it Affect Small Business

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If you own a small business, success will not come to you if you only wait for it. Instead, you need to go toward it. This is why it’s crucial if you’re a small business owner (or any size business owner for that matter) to predict the future and know where your company is heading. But how do you predict the future without a fancy crystal ball? That’s the domain of sales or demand forecasting and I’m going to explain what it is all about in this article.

What is Sales Forecasting?

There are several definitions of sales forecasting, but I like the one from Hatchbuck so I’ll borrow it to help you better understand it:

A sales forecast allows you to determine what your estimated sales (Revenue, New Customers, etc.) will be for a given time period. The forecast is generated from an analysis of previous data about your sales, the sale of similar products by your competitors, and market response to your offerings.

There are basically two types of forecasting, depending on how long it takes:

  • Short term forecasts are for a period of 1 year. These types of forecasts are mainly used to make certain tactical decisions and focus on seasonal cycles and growth patterns.
  • Long term forecasts are for longer periods, of more than a year. These are necessary for establishing the company’s long term vision and setting up new locations and business units.

What Steps You Need to Take in Forecasting?

Forecasting sales demand should never be done ad hoc. The wrong forecast will easily lead you to the wrong conclusions. It’s best to avoid it, naturally.

Here are 4 steps that you need to take in forecasting your demand:

  1. Appraise your past sales

“You have to know the past to understand the future”, as Carl Sagan once said. If you don’t know your old sales and haven’t learned from them, how do you expect to improve your future sales?

For an already established product, look at your previous sales, going back 3-4 months or even more if possible. Evaluate every part of those sales, including monthly sales, sales rep, distribution and price. The more data you have, the better. However, even if you only have one location, one product and one sales month, you can still earn a lot from this.

  1. Talk with your sales reps and retailers

Who knows the sales better than those directly involved such as sales reps and retailers. Their input will be extremely valuable in forecasting future sales. Get them in the room and let them tell you their insights from talking with customers. You might not even realize that you’re using a wrong distribution channel or have set your prices too high. But if you have sales reps that keep their ear on the ground, you can learn this sooner and correct accordingly.

  1. Pay attention to industry trends

Forecasting can’t be done in a vacuum. If you don’t follow up with your industry’s trend, you risk  being left behind. Websites of your industry’s trade associations are the first step you need to take to learn about the latest trends, new competition, whether a competitor has left the market, new competing products and services and more.

Industries and markets change all the time. If you are not paying attention, others do and will have a head start.

  1. Forecast

Once you’ve evaluated your past sales, had a face-to-face meeting with sales reps and retailers and have picked up on the latest trends in your industry, there’s only one thing left to do. Create your forecasts.

Typically, you want to create as many forecasts as you can, but you should create at least five. One for each quarter and one extra for the next year. You should also create forecasts based on your current price point. Create one lower and one higher as well as best-guess scenario that you get from analyzing your current performance.

Finally, create one optimistic and one pessimistic forecasting scenario, but in the end, stay realistic with your forecasts.

Conclusion

Don’t expect success if you don’t accurately forecast. Forecasting can help you learn what mistakes you’ve made in the past and how to move in the future. This makes it crucial for any small business.

And speaking of things t important for a properly functioning business, you need to make sure your purchase orders are always in order. This is where our Purchase Order Plus add on software for Xero can help. If you are looking for a way to easily create, approve and send POs on any device, sign up for a free trial of Purchase Order Plus.

components of supply chain management

6 Must-Have Components of Supply Chain Management

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There are two things that your supply chain needs in order to be effective. First, it should be able to deliver results on time , second, it should be cost-effective. How do you accomplish those two? Well, depending on your business and industry, it could be more or less difficult, but you always need to make sure that the following 6 components of supply chain management are working for you.

1. Planning

Planning, as it relates to SCM isn’t just about sitting down and thinking “this is what we’re going to do”. Yes, there’s that as well, but much more beside. Planning is not just one activity, it’s a whole specter of them and it starts with the decision whether to manufacture the components yourself or to buy them from a supplier. This decision needs to be weighed carefully.

But even when you opt for one or the other, there are still nuances for each choice. Will you manufacture domestically or internationally? Buy from a domestic or international supplier? Make goods to stock or to order?

2. Sourcing

You know what the worst kind of plan is? The one that is never executed. Even completely bad plans are better than that. So the next component of supply chain management that you need to take care of is sourcing.

This means identifying, evaluating and bringing suppliers that will provide you with goods and services and it depends heavily on your business needs. This is why you should carefully evaluate your material, service and financial requirements before before you even attempt to reach potential suppliers and start a formal bidding process.

3. Demand and Inventory

No SCM can survive without a well-maintained inventory. You need to have items, components, raw materials and such always at the ready if you are to deliver products on time. Without a proper inventory, you won’t be able to manufacture, let alone sell your products.

Your inventory will first and foremost depend on the actual demand. If the demand is high, your inventory should be high as well, if it is low, cut the inventory. How do you bring the two together? By bringing in demand planning at the early stages of your product development process. Accurate forecasting is the key here.

4. Production

There’s not much  to say about this element of SCM that you already don’t know. At the end of the day, if you don’t produce something, you can’t sell it. It’s simple as that. In a way, this is the central component of supply chain management. Everything before leads directly to it and everything following picks up after it.

5. Warehouse and Transportation

Warehousing and transportation are another two important components of supply chain management. First, you need somewhere to store your product, which is where the warehouse comes in and y second, you need to be able to transport and deliver goods from point A to point B or from your manufacturing centre or warehouse to the store and the customer.

We already touched a bit on the warehouse part when we talked about inventory, so let’s turn our attention for a moment to transportation instead. On time transportation is incredible important for an uninterrupted business process, but beside fast, it should also be safe. The customer wants to get his order in one piece after all.

6. Return of Goods

The three words that no business owner wants to hear is “return of goods”. Yet sometimes you can’t escape from them. Well, since it’s like that, why not make what seems like a defeat in something that can work for you and at least increase your reputation with the customers?

Not all of your products will be in pristine condition and some may, for one reason or other, reach the buyer in a defective state. Of course, they will want to return those. Unfortunately, I’ve seen plenty of companies that make return of their goods a complete nightmarish process. That’s not how you should do things. How do you think the customer will feel when they not only receive damaged goods, but now they can’t return them either?

Admit your mistake, apologize for the inconvenience and accept the return.  Of course, you should have clear rules for what can be returned and what not and how your returned goods should be managed.

Conclusion

There you have it. With these six components of supply chain management, you will be able to accomplish those two main task of an SCM that we talked about at the beginning of this article – deliver results on time and be cost-effective.

Do you have any thoughts or questions about this? Let me know in the comments below and don’t forget to sign up for free for Purchase Order Plus.

Logistics management tips for SMBs

6 Important Logistics Management Tips for Small Business Owners

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It may start like a dream, but to many business owners, it can quickly turn into a nightmare. Despite what they say, there is more to it than “hustling” and working long hours. If you want your business to succeed and to sell your product, you need to pay attention to a lot of things. One of them is certainly logistics. Here are 6 logistics management tips that will help your small business thrive and keep your customers happy.

1. Set Your Objectives

Okay, this one is easy, right? The objective of logistics is to move the product from point A to point B. Easy. Except there is more to it. Your logistics objectives first need to align perfectly with your business objectives. Second, you need to determine what is your primary target. Do you want to have cheap delivery or fast delivery?

If you are going for cheap delivery, you will probably have to find some non-essentials that you can remove from the equation. On the other hand, if you’re aiming to provide fast delivery, then your transportation and shipping costs are likely to increase. In the end, you need to find that perfect balance between these two and find out what the customer wants.

2. What’s the Plan?

Once you know what your logistics objectives are and they are aligned with your business and marketing objectives, it’s time to work out a plan. Now, keep in mind that you can’t plan only based on your expectations. That will be just one thing that you will need to look at, but there will be different areas that will demand your attention as well.

You should have a plan for full shipping ready in advance, of course, but also don’t rely on just one plan as it might easily fail you. Always set up contingency plans in case things don’t work out as you intended. For instance, if there are delays, the truck breaks down or has to take another route to reach the customer.

3. Keep an Eye on the Costs

Former Secretary of Treasury of Great Britain, William Lowndes (1652-1724) once said: “Watch the pence and the pounds will take care of themselves”. The quote was latter attributed to Benjamin Franklin (falsely), but whoever first said it was right to the point.

You should know how much each element of the logistic process costs you, and not just focus on the major ones like shipping or packaging. That way, when you know where each dollar, euro or pound is going, it is much easier to find things where you can save on costs and keep your cashflow in check.

4. Track Every Inbound Supply

Don’t just track the shipment. Track all inbound supplies that you have. For example, if you are selling furniture, you need to make sure that you have all the needed materials to make it. If just one piece is missing, you can’t make that desk or chair.

Knowing when your material will arrive makes it much easier for the workers to assemble the final product and start delivering it to the end user.

5. Improve Your Customer Service

You can never have a too good customer service. Always work on improving your customer’s satisfaction. One sure way of doing this is to keep them informed about their order. That means from start to finish. Hopefully, that finish is at their doorstep, but if there are any delays or other problems, you need to keep them informed about those as well.

The customer will much more appreciate your honesty and your commitment to rectify it (and if need be, you can always give them something extra as an apology) than if you keep your mouth shut and keep them in the dark about the shipment.

6. Try 3rd Party Logistics Companies

As an SMB you might not have the luxury of having your own logistics. That’s perfectly fine as there are plenty of 3rd party logistics companies or 3PLs out there. Don’t go for the first one you find though, or the cheapest one either. Get at least 3-4 quotes from different 3PLs and compare what they offer.

Even then, don’t settle for the first price. Always negotiate to get the best deal possible for your company.

Conclusion

Logistics is a crucial element in the supply chain and your business operations as a whole and it can make or break it. These 6 logistics management tips can help you make sure things run smoothly.

Do you have any thoughts or questions about the article? Let me know in the comments below and don’t forget to sign up for Purchase Order Plus.