How to forecast production in your seasonal business
Whether you manufacture Christmas ornaments or book live bands for boat cruises, you know that running a seasonal business can be very challenging. How many orders can you expect for the Holidays? How big will the crowds be this summer?
Forecasting—an estimate of the future based on historical data—is a great planning tool to help you get over these challenges.
The key is knowing where to start. What do you want to know and plan for? Is it in creating demand, sales and confirmed orders, or the availability of labour? Or could it be about the amount of snow expected?
What bit of uncertainty would you like to remove? Once you know that, you can start exploring.
Here are five things you should think about when it comes to forecasting for your seasonal business.
1. Remember that forecasting production is a process
The goal is progress, not perfection. Don’t expect your forecast to be 100% accurate on the first try. As you gather more data, you’ll refine your approach and see your forecasts becoming more precise. The important thing is to start! You can plan and adjust as you go, whether you’re looking at the short-term, the mid-term or taking a long-term view.
2. Use your team to help forecast production
As you create your forecast, it’s important that you gather different perspectives from every function of your company, starting with sales and moving on to operations. This will not only allow you to anticipate demand, but also help you understand how much supply-side capacity you need to meet it. This process can ultimately help you hammer out a good daily, weekly or monthly master production or operations schedule.
Keep in mind that forecasting is a cross-functional subset of sales and operational planning. It involves aligning and involving every part of your business, from customer-facing salesforce to operational teams delivering services or making goods.
3. Don’t assume that this year’s business seasons will be like last year’s
Just because your business is seasonal doesn’t mean it’s going to see the same patterns year after year.
Just because you had a lot of orders last December doesn’t mean your orders won’t come a month early next year. Keep checking the actual results you experience against your forecasts to refine them further and make sure your operations are geared up or down as needed.
4. Find a forecast model that works for you and stick with it
Forecasting is a statistical science. There are many, many different forecast models that can be categorized as static and adaptive. Businesses that need to accommodate trends and seasonality can consider the Holt-Winters model, but don’t get caught up in technicalities at the beginning.
And remember that every forecast, including a weather forecast, will always have a component of error, regardless of whether your business is stable, cyclical or seasonal—the key is to accept this and continue to improve your forecasting to minimize this error.
5. Go for incremental improvements in forecasting seasons
Incremental change is better than just sticking with the status quo. By refining your forecast over time and applying to your operations, what you’ve learned you can achieve better balance between supply and demand.
Start small and simple.
A lot of entrepreneurs become overwhelmed by the apparent complexity of business forecasting. Mathematical and statistical models for forecasting can be particularly difficult to understand for the non-expert—and many entrepreneurs dismiss forecasts as something that will “never” work in their business, which is not a good conclusion.
As the saying goes, if you fail to plan, you may be planning to fail. If your business sees lots of variability, then developing a forecast becomes all the more important.
So, if you want to forecast for your business, start with one simple question: What do you want to have more certainty about?
And as you’re advancing in your forecasting efforts, you can find software and tools to help. Remember that BDC is here, too, to offer expert advice when and if you need it.