6 Reasons to use ERP software for demand forecasting
Demand forecasting is an integral part of business analysis that enables businesses to plan their strategies. Demand forecasting is performed on different software and tools. The most used tool for demand forecasting is spreadsheets.
Every tool has different setbacks that restrict the accuracy of results to low levels. As business models are getting complex and sophisticated the need for complex tools is getting higher. Although spreadsheets are doing great with their upgrades and enhancements they cannot address new and dynamic variables in the equation. Thus, restricting the output.
In this article, we will discuss the problems of using spreadsheets for demand forecasting and how ERP software can make it better. Moreover, this article focuses on six major problems spreadsheets have that ERP software can fix in demand forecasting.
The problems using spreadsheets for demand forecasting:
Using spreadsheets for demand forecasting is a traditional practice in businesses. MS Excel is used for that purpose, financial analyst of the company creates the financial model that forecasts demand and other variables. Excel uses different formulas and formatting to forecast demand.
Spreadsheets have certain limitations and flaws that restrain them from formulating complex calculations with multi variables and different methods.
Following are six major problems with spreadsheets and how ERP software can help businesses in it.
- Data Integrity Issues
- Poor Collaboration
- Lack of Version Control
- Not Scalable
- Lack of Scenario Analysis
- Difficult to Incorporate Historical Data
1. Data Integrity issues:
The integrity of data used in spreadsheets for demand forecasting is very low. Because the source of data and spreadsheets are two different tools. Importing data from ERP software or any other source that has the data is a difficult task.
If the data is manually transferred or recorded then it is even more complicated. Spreadsheets are vulnerable to data integrity because they can be easily edited. When the data is manually transferred to spreadsheets with easy edits chances of human error increase.
These concerns make spreadsheets risky for data integrity and when data is compromised the credibility of results suffers.
How ERP software helps in securing data integrity with credible results:
ERP software is an all-in-one solution that will record, manage, and analyze all your data. The software helps businesses to perform their analysis with various tools designed to formulate complex tasks. Demand forecasting is one of those features.
The ERP software reduces the time and error that occur importing data to spreadsheets. Moreover, the ERP software enhances the quality of forecasting by running different analyses to form accurate forecasting for businesses.
2. Poor collaboration:
As we discussed earlier, demand forecasting is a complex process. It requires input from various departments to compile required data that can produce useful results. Demand has hundreds of variables that can have their influence on it.
For example, the finance department has to collaborate with the operational department, manufacturing department, and marketing department to develop a strong equation.
While working on a spreadsheet this process causes errors because so many people can excess data and can easily edit, remove or add it. Moreover, the connectivity among them cannot be sustained because the source of data and analysis tools are not synced together.
How ERP software helps in creating strong connectivity & collaboration?
ERP software provides a centralized system that collects data to a centralized point. All the different departments and sections of the business are connected to the ERP software. Moreover, the system provides an interface to all the departments to put their inputs.
The ERP software restricts users from manually entering data because the system automates the entire process. In the case of demand forecasting, all the relevant data is collected through different sections of the business and recorded at the centralized database. Then the system asks only for relevant input from respective departments.
The software has all the features and tools to do the forecasting on its own with defined parameters. Once all the data is received it can instantly compute the results. In large enterprises, more complex models of ERP software are used to do demand forecasting.
3. Lack of version control:
Spreadsheets or excel sheets have different versions. All the versions have upgraded features. The old dated versions can not process the advanced version’s calculation. It means that if one user has the latest version of the spreadsheet and another one has the older version. The file cannot be edited or sometimes cannot be opened in the older version.
This lack of version control can cause serious problems because all the analysis is performed manually. In demand forecasting, any such lack and error can change the course of the entire trajectory of sales.
How ERP software can solve this problem:
ERP software is a centralized system, when the software updates the entire system updates because all the sections are connected to the same server. The ERP software which the finance department uses and the human resource management department uses the same software. The synchronizations on the system enable different departments to work on the same task at once. The ERP software solves this problem and develops a strong demand forecasting report.
4. Not scalable:
Spreadsheets require tons of manual input to work properly. Any change in demand forecast assumption requires manual changes in the spreadsheet. This hectic process takes hours and requires precision to avoid any mistakes.
The business that is growing rapidly with a dynamic environment and market cannot scale its demand forecast model because of severe limitations and restrictions.
Spreadsheets are effective for individual or section-wise forecasting of demand rather than used for hundreds of SKUs at once.
How ERP software can increase the scalability of demand forecasting?
ERP software is a dynamic tool that enables businesses to scale their forecasting models. The primary advantage of ERP software is its automated system. Any changes in the assumption for demand forecasting can be updated in the ERP software and the system updates the whole model according to the change.
5. Lack of scenario analysis:
Scenario analysis is something that strengthens the demand forecasting model. Scenario analysis creates answers to the “what if” scenarios. For example, what if the government increases the sales tax a good forecasting model answers these questions.
In spreadsheet demand forecasting, creating such an analysis is a very complex and complicated task and sometimes nearly impossible to do. The limitations of the spreadsheet complicate the model.
Other than that, spreadsheets cannot synchronize data to its source to create an automated analysis based on assumptions.
How ERP software can create multiple scenario analyses for demand forecasting?
ERP software is capable of creating multiple scenarios with multiple variables. There are advanced versions of ERP software that can create and run such complex models in no time.
As we discussed earlier the centralized connectivity, and complex data analysis tools enable ERP software to compute such models.
6. Difficult to incorporate historical data:
Historical data is the primary source of data required to do demand forecasting. The nature of spreadsheets is to manually input the data to forecast the demand. Retrieving tons of data manually is a difficult process. Moreover, the data has to be imported to the spreadsheets from multiple sources that create a number of sheets complicating the forecasting.
Other than that, demand forecasting is a very flexible analysis. Rapid changes in assumption and model adjustments are required to forecast demand. Incorporating historic data into such flexibility is very complicated to do.
How ERP software can incorporate historical data?
ERP software can incorporate data from multiple sources. The software can easily work with hundreds of different sheets of data. Other than that the system is open for any updates in the model and can adjust data automatically if parameters are defined.
The primary advantage ERP software has over spreadsheets in demand forecasting is that the source of data and data analysis tools are all integrated on the same system.
ERP software manages and incorporates different other variables and adjusts them according to the defined parameters.
Note: these features are available only to certain versions of ERP software. Usually, large enterprises use such ERP software.
