How to forecast production in your seasonal business
Read time: 4 minutes
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.
According to BDC Business Consultant Ashay Gude, the key is knowing where to start.
“The first question is ‘what do you want to know and plan for?’ Demand? Sales and confirmed orders? Availability of labour? Amount of snowfall?” says Gude. “What bit of uncertainty would you like to remove? Once you know that, you can start exploring.”
Here are five things Gude says you should think about when it comes to forecasting for your seasonal business.
1. Remember that forecasting 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 become 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
As you create your forecast, it’s important that you gather different perspectives from every function of your company starting with sales, and moving 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 and get consensus. This process can ultimately help you hammer out a good daily, weekly or monthly master production or operations schedule.
“Forecasting is a cross-functional subset of sales and operational planning,” says Gude. “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 what happened before will happen again
Just because your business is seasonal doesn’t mean it’s going to see the same patterns year after year.
Maybe you had a lot of orders last December, but that 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 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 trend and seasonality can consider Winters’ model and Holt’s model.
Forecasting can quickly get very technical and complicated. Don’t get caught up in technicalities at the beginning. The most important thing is to pick an approach and start.
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
Gude says that incremental change is better than just sticking with the status quo. By refining your forecast over time and applying what you learn to your operations, you can achieve better balance between supply and demand.
Start small and simple
“A lot of entrepreneurs get overwhelmed by the apparent complexity of forecasting. And as it becomes more sophisticated it can get pretty complex pretty quickly,” says Gude.
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.
“If you fail to plan, you may be planning to fail,” says Gude. “If you have high variability in your business, it becomes all the more important to develop a forecast.”
“It’s important to start small and simple, with one question: What do we want to have more certainty about? There are software and tools you can use to help advance your forecasting efforts, and BDC is also here to offer expert advice when and if you need it.”