How ERPs forecast potential gains for a business which turns raw material into finished goods?
If you are running business that uses raw material to produce finished goods, i.e. you are running a manufacturing concern, your major area of focus will be to understand how the demand for the products you are manufacturing is going to be at least at the yearly, half-yearly and quarterly basis. Without doubt, you will have been a very wise person to have deployed a comprehensive ERP system in your organization to keep track of everything at the maximum granularity level that you can.
Significance of Historical Data
With an ERPs in place and fine-tuned to your particular setup, you will have the luxury of having complete information available from all sections of your business in one place along with the associated time and date information. Historical data of your own business is the most crucial asset for you to be able to forecast your business’s potential demand and hence business gain.
Concept of Forecasting and Prediction through ERPs
The most natural way for you to predict anything about the upcoming future is to look at the similar circumstance of the past. Mathematics and Statistics provide the basic calculation tools for projecting an existing scenario into to future by recognizing a trend and extending it in the similar fashion into the future. Obviously, it will be a probabilistic claim about the future but keeping the anomalies aside, mathematical forecasting will provide you with reasonably accurate figures to use for planning.
ERPs and Demand Forecasting
As a manufacturer, you will be placed somewhere along the consumer value chain that feeds the market. You can consider the following factors while trying to predict the upcoming demand for your manufacturing business.
Many ERPs can provide you with the information on the geographical areas of your customers and how the demand for your products has been for each of the areas in the past months and years. You will also be able to understand how the demand from each area varied with time and predict what to expect.
Your ERP can identify peak periods, which would indicate the season for your products and low demand periods, which would indicate off-season. You would be wiser about when a peak season may be coming up and prepare accordingly.
Highly efficient ERPs can show you numerically and graphically, how each of your customers’ demand varied in the past. You may be able to identify factors that affected the change in the demand placed by each of your customers. You will be understanding your customer’s behavior and better able to predict when to expect demand or when to inquire about demand.
Your ERP can provide you a product-wise understanding of how its demand varied over the time. So, you can make fact-based forecasting decisions and adjust your supply side of raw materials.
ERPs and Supply Forecasting
Your ERP will provide you with detail up to very granular level on the availability of raw materials and their lead times. You can make decisions about choosing additional sources of supply or alternate sources supply. You can make decisions about when to procure how much so that your manufacturing demand can be conveniently fulfilled.
ERPs and Financial Forecasting
It is absolutely paramount to keep your finger on the financial pulse of your manufacturing, because after all, that is what enables you to sustain. Business Financials is the oldest domain of ERPs. Back in the days of mainframe computers, the major use of ERPs was to record, retrieve and maintain financial information. Your ERP can provide you forecasts for the following in the least,
You can forecast not only how much income you can expect, but where you can expect it from and the various factors that may have an effect on it in a positive or negative manner.
A key to sustaining your manufacturing business is to foresee how much you will be spending. With all data in place, you will have a good idea of how you can manage the spending.
Nothing will hurt your profit margins more that cost fluctuations and ERP can forewarn you on any possible cost fluctuations and how grave or good the impact may be.
ERPs utilize the mathematical, statistical and data-science tools. So they can predict accurately, what the businessman can expect in the time ahead. The historical data is pivotal for the forecasting in this regard. ERPs cover all aspects of the businesses including money, time, material and labor and their interdependencies. ERPs are fully integrated to provide a wholistic picture to the owners and thereby become the major differentiating factor between a successful and thriving business and a business doomed to fail.