There is a considerable difference between budgeting and forecasting in financial planning. Budgeting is done at the beginning of the year and considers only the historical figures in extrapolating the sales and volume for each product and customer. Whereas the forecasting is done in quarterly basis for each month and considers along with the historical factors the current situation and requirements for the volume and sales according to each customer.
Accurate forecasting is vital not only in production planning but also financial planning of any company. When the volume numbers are under forecasted the impact will be the production of those products will be produced in short and the customers will be short shipped. In current business environment this is not advisable as continuous short shipment will not only lead to huge penalty charges by the customer but also ultimately loose the customer.
Against this is the over forecasting of sales for the products against various customers. Here again the inventory increases and funds become unnecessarily arrested in idle products. This not only increases the inventory cost but also carrying cost, to keep this inventory safe and in saleable condition will go up. The cost of borrowing in developed countries is still low but in developing countries the interest rate is exorbitantly high and the management cannot accept funds being wasted in carrying higher inventories without proper reasons.
In this situation, the sales personnel should try to concentrate on knowing the exact current requirements of each customer for each product on monthly basis. This has to be fed up in the system where the production manager is adequately informed about the requirements of each product. Any intermittent changes have to be immediately updated and made known to the production department.
There are many instances where the production department is not properly informed or they are not aware of any intermittent changes that may be higher or lower forecast for a particular product. There are also some cases where production department is careless by ignoring the forecasting and in few other cases the production department fail to plan their material requirement adequately. All these unacceptable behaviours of personnel lead to huge penalties and in long run loosing the customer’s business.
Accurate forecasting is vital in the success of any corporate planning. All the concerned department personnel should have co-ordinated effort right from knowing what products are required for each customer in every period to shipping those products at right time. Only this orderly implementation will make forecasting and sales planning a successful exercise.
Accurate forecasting is vital not only in production planning but also financial planning of any company. When the volume numbers are under forecasted the impact will be the production of those products will be produced in short and the customers will be short shipped. In current business environment this is not advisable as continuous short shipment will not only lead to huge penalty charges by the customer but also ultimately loose the customer.
Against this is the over forecasting of sales for the products against various customers. Here again the inventory increases and funds become unnecessarily arrested in idle products. This not only increases the inventory cost but also carrying cost, to keep this inventory safe and in saleable condition will go up. The cost of borrowing in developed countries is still low but in developing countries the interest rate is exorbitantly high and the management cannot accept funds being wasted in carrying higher inventories without proper reasons.
In this situation, the sales personnel should try to concentrate on knowing the exact current requirements of each customer for each product on monthly basis. This has to be fed up in the system where the production manager is adequately informed about the requirements of each product. Any intermittent changes have to be immediately updated and made known to the production department.
There are many instances where the production department is not properly informed or they are not aware of any intermittent changes that may be higher or lower forecast for a particular product. There are also some cases where production department is careless by ignoring the forecasting and in few other cases the production department fail to plan their material requirement adequately. All these unacceptable behaviours of personnel lead to huge penalties and in long run loosing the customer’s business.
Accurate forecasting is vital in the success of any corporate planning. All the concerned department personnel should have co-ordinated effort right from knowing what products are required for each customer in every period to shipping those products at right time. Only this orderly implementation will make forecasting and sales planning a successful exercise.
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