Let’s talk forecast accuracy: the roi of forecasting software, quantified
Forecast Accuracy… Many companies underestimate the power of getting it right. Even more concerning is the fact that most believe the costs attached to inaccuracies are a necessary evil of the business.
Untrue. If that’s the case, then we need to do a better job at quantifying the ROI of forecasting software.
These applications drive deep forecast accuracy by translating the forecast into meaningful actions in your daily demand planning process. In a nutshell, forecasting software empowers companies to dramatically decrease inventory and operating costs, increase service and sales, improve cash flow and ROI, and increase pre-tax profitability.
What is the ROI of forecasting software?
Here are some solid numbers from the Institute of Business Forecasting (IBF) to convince you that forecasting software is highly effective at driving both indirect and hard cost savings, as well as revenue improvements:
- A 15% forecast accuracy improvement will deliver a 3% or higher pre-tax improvement
- Even a one-percentage point improvement in under-forecasting error at a $50 million turnover company gives a saving of as much as $1.52 million
- And for the same amount of improvement in over-forecasting, $1.28 million
- Forecast accuracy can translate to increased revenue of 0.5% to 3% with improved inventory availability or demand shaping capabilities
- Total annual direct material purchase, along with logistics related expenses arising from demand variability, can see direct improvements of 3% to 5%
- Firms can also benefit from a 20% reduction in airfreight costs
When Will You See Results?
The average forecast management technology should reasonably have a payback in less than 24 months, with many showing ROI in under 18 months. At Blue Ridge, however, it is much sooner – typically in under 90 days.
Our partnerships, integrations and proactive LifeLine services team are set up to accelerate time-to-value – and continuously improve results for the lifetime of the solution.
What’s the potential for your business? Use this nifty Forecast Error Calculator to calculate how much money you will save by reducing forecast error.
Popular Does Not Mean Best
Before closing, I do need to warn you…
When it comes to forecasting software, note that ‘popular’ doesn’t always equate to ‘quality’. An ERP or an advanced planning system that claims to do it all may not have the forecasting tools you need.
“There are plenty of specialized and lesser-known products that deliver brilliant results”.
- Eric Wilson, author and Certified Professional Forecast
Many companies unknowingly push off their forecasting software implementation until after their ERP solution is in place. There’s no reason to wait… Blue Ridge has actually helped our customers use the savings from implementing our platform to fund their ERP!