When you forecast demand for finished goods, the financial consequences of inaccuracy can be huge. Forecast errors cause you to run out of stock. The result is missed sales and unhappy customers. Forecast errors can also cause you to carry too much inventory. You may have to borrow money to pay for the excess. You may also have to mark inventory down, donate it or even junk it just to get rid of it. Forecast error reduces profit. It can also reduce cash flow and increase the need for capital. Excess inventories yield a lower return on assets. Conversely, more accurate demand forecasts can reverse all of these problems. They can improve in-stock performance, increase revenue, improve customer satisfaction, reduce inventory investment, improve cash flow and improve return on assets.
Read more about the art and science of demand forcasting on the Blue Ridge blog.
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