For any organization, “Demand” fundamentally originates through the ebbs and flows shaped by consumer habits, competitor and customer behavior, and various events that are happening in the world. Traditional demand forecasting methods look solely into historical volumes and miss the impact of these drivers. Driver-based forecasting is meant to truly address this problem.
In today’s VUCA (volatile, uncertain, complex, and ambiguous) world, solely relying on history means that organizations are blind to the different reasons for demand changes. The goal with driver-based forecasting is to leverage AI and ML to identify anomalies in history and match with known events, promotions, and portfolio updates. Moreover, every department within the organization has some insight about future demand– e.g., sales is aware of customer dynamics, marketing has information about campaigns and new launches, finance has information about budgets and working capital conditions etc.
By using drivers, businesses can simplify their forecast model and make it more responsive to changes in their business environment. Businesses can also align their forecast with strategic goals and initiatives and communicate them clearly to their stakeholders.
Here are some of the benefits of using driver-based forecasting:
- Increased accuracy: It helps businesses to improve the accuracy of their forecasts between 10-30% by focusing on the data that has the greatest impact on their financial results. This can be especially helpful in businesses that are subject to rapid and unpredictable changes.
- Improved efficiency: Driver-based forecasting can help businesses to improve the efficiency of their forecasting process by simplifying the model and making it more automated. This can free up time for businesses to focus on other important tasks, such as strategic planning and decision-making.
- Increased collaboration: Driver-based forecasting can help businesses to improve collaboration between different departments by providing a common framework for understanding the drivers of financial performance. This can help businesses to make better decisions that are aligned with their strategic goals.
- Enhanced insights for decision-making: Driver-based forecasting can help businesses to make better decisions by providing insights into the impact of different scenarios on their financial performance. This can help businesses to evaluate trade-offs and alternatives, and to make more informed decisions about their future.
Overall, driver-based forecasting can be a valuable tool for businesses of all sizes. It can help businesses to improve the accuracy, efficiency, and collaboration of their forecasting process, to understand the key levers that can be used to influence their sales and revenue, and to subsequently make better decisions about their future.
Other benefits of driver-based forecasting:
- Better understanding of the business: Driver-based forecasting can help businesses to better understand the drivers of their financial performance. This can lead to improved decision-making and strategic planning.
- Increased transparency: Driver-based forecasting can help to increase transparency within a business. This can help to build trust and alignment between different departments.
- Improved communication: Driver-based forecasting can help to improve communication with stakeholders, such as investors, creditors, and customers. This can help to build relationships and secure funding.
If you are looking for a way to improve your forecasting process, driver-based forecasting is a good option to consider. It can help you to improve the accuracy, efficiency, and collaboration of your forecasting process, and to make better decisions about your future.
Anupam is a global business leader and entrepreneur with a deep expertise in forecasting and supply chain. He has over a decade of unique experience in combining mathematics, AI, and human intelligence to creatively solve business problems and create tangible value across many Fortune 1000 companies.