How Companies and Organizations Use Sales Forecasting As A Tool for Business Planning

Sales forecasting is the process of determining future sales and selling requirements based on information currently available. Sales forecasts are critical to business planning. This is because every department in the organization relies on sales data for planning and allocating resources effectively. Planning requirements may be short term, medium term or long term. Short term requirements are usually determined to meet tactical needs in the nearest future such as production requirements while medium term forecasts are designed to meet organizational needs ranging from months to about 3 years such as budgetary requirements. Long term forecasts are mostly economic in nature and are usually made to meet the requirements of the organization in the long term. E.g. expansion plans.

The benefits of sales forecasting to organizations accrue from how its departments and organs use this information for organizations growth and development. For instance:

The Production Unit needs sales data to help them determine how much more or less quantity needs to be produced, whether or not extra machines and labor would be required for production and how customers are reacting to the product offering of the company.

The Human Resource Unit of the company will need to determine based on the sales forecast whether labor requirements are adequate to meet the staffing requirements of the company both presently and in the future, whether experts/specialists will be needed to champion growth opportunities etc.

The Purchasing Unit will need sales data to determine whether purchasing requirements will have to be increased or decreased. They will also need to determine stocking options and reorder levels, manage supplier relations to ensure raw materials purchased are delivered in the right quantities and at the right time to meet production. They will also assist to determine when to buy specific quantities of materials so as to take advantage of price discounts and avoid price hikes.

The Finance Department will need to make money available for other units to function properly based on the sales forecast made. For instance, purchasing costs which are tied to the requirements of the production unit based on forecasts made. Another example is the cost of recruitment to be made by the human resources department who needs to recruit more staff for the production or purchasing units based on sales data. The finance department will also need to ascertain revenue anticipated for long term planning and the need to fund capital costs that may border on expansion.

The Research and Development Unit works with sales forecasts to determine the effectiveness of product launches, designs, quality, technology and features. These data also serve as feedback necessary o improve product offering for the organization.

The Marketing Unit will need sales forecasts to manage the targeting of marketing activities bordering on sales and sales promotions, advertising, demographics, competitive strategies, customer preferences etc.

Because every department relies on sales data for efficiency, it is imperative that this data be reliable, accurate, timely, complete and workable to succeed.

Valentine Okolo
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