Planning ahead is usually straightforward when business is running smoothly. However, persistent staffing issues, product launch delays, or unforeseen events like a pandemic, natural disaster, or supplier issues can significantly affect your budget. Strategic forecasting and budgeting provide a solid foundation for stability and growth. When significant changes occur, companies need to adjust their forecasts accordingly.

Given the ongoing challenges of inflation and supply chain disruptions, ensuring accurate forecasts is more crucial than ever. Last July, the Federal Reserve raised the federal funds rate to levels not seen since 2001. The peak was part of a series of hikes aimed at curbing inflation, and rates have remained largely unchanged since then.

Manufacturing businesses faced difficult conditions due to multiple supply chain disruptions throughout last year, impacting operations well into 2024. Specifically, 71% of global companies cited raw material costs as their primary concern regarding the supply chain. These disruptions, coupled with inflation and high interest rates, contribute to a wider economic slowdown and diminished investment returns.

As a manufacturing business, market uncertainties may have affected your forecast or budget for the recent quarter, potentially leading to inaccuracies. If your projections weren't as precise as anticipated, don’t worry — there's still an opportunity to make adjustments. It's important to remember that a missed forecast doesn't necessarily indicate trouble. A forecast falling short of expectations could also bring unexpected benefits, like surprisingly successful sales. Either way, figuring out what caused the forecast to deviate is essential to getting back on track. Establishing accurate data dashboards — an area where an expert consultant can assist — is a key step.

Demystifying budgeting, forecasting, and the art of adjustment 

Budgeting and forecasting work together but serve distinct purposes. Budgeting sets a foundation for comparing actual outcomes against expectations. At the same time, forecasting acts as a compass for financial planning, assessing whether the budget is likely to achieve its intended goal.

Failing to meet a forecast has consequences. To correct course, it's important to understand the underlying causes. Are production inefficiencies or supply chain disruptions affecting your company? Are there issues with sales performance in specific markets? Could the problem be linked to a key client or overlooked expenses? Even if revenue appears flat, lower operating expenses due to vacant positions might result in higher-than-expected profitability, signaling potential trouble.

Considering repeated disruptions, a recent survey found that nearly 50% of supply chain leaders have invested in advanced analytics for supply chain management and planning. For manufacturing businesses, reforecasting is essential for adapting to unexpected changes. The process involves evaluating progress against the original budget to understand why the forecast was off, often due to incorrect assumptions during budgeting. Reforecasting identifies these errors, enabling more accurate future predictions and better financial management.

Navigating the complexities of accurate forecasting and strategic insights

Creating a company's forecast starts with gathering, storing, and analyzing accurate data. Given the abundance of data available in the manufacturing industry, the process can become quite complex. A forecast is influenced by both financial and operational numbers, making it essential to consider both aspects throughout the process.

Bringing in a consulting expert can be invaluable for understanding why a business missed its goals and planning for future success. With accurate dashboards, a consultant can identify what was missed, why it was missed, and whether these issues are sustainable. They also provide expertise in accounting and finance, including cash flow analysis, accounting cleanup, and bookkeeping.

Several potential factors could have thrown a company's forecast off track. For instance, they might have lost clients during the quarter, faced supply chain issues leading to production delays, encountered difficulties in hiring the right staff, or experienced hurdles with their automation processes. 

Figuring out if missed forecasts are a recurring issue or a one-time incident is important. Sometimes there are other factors at play that companies haven't considered yet. Let's say you've just hired several new employees to ramp up your manufacturing operations. This might lead to higher costs and a temporary hit to profitability as you invest in your workforce. However, over the next six months, you should start to see a solid boost in production as your staff successfully adjusts.

Crafting tailored forecasts: The role of weekly insights and timely adjustments

Research from Gartner shows that fewer than 50% of sales leaders are confident in their organization's forecasting accuracy. According to a McKinsey report, around 40% of CFOs admitted that their forecasts were not entirely accurate and took far too long to complete. Lack of certainty often leads to decisions based on intuition rather than evidence, leading to lower commercial success. 

When forecasting, manufacturing businesses should stay updated by analyzing trends and monitoring operational aspects such as sales pipelines, estimated costs of goods sold (COGS), and staff expenses. Simply revisiting a forecast when unexpected changes arise isn't enough. Owners should consistently evaluate their company's performance against the budget throughout the year and make necessary adjustments to forecasts.

Manufacturing companies must have enough detail to make necessary adjustments. Key elements of an effective forecast include a dashboard offering an ongoing snapshot of cash flow, and weekly monitoring of revenue, activity, and gross profit numbers. Bringing in a consulting professional can highlight the importance of checking insights weekly and throughout each quarter to make timely changes.

An expert can create and implement a streamlined and comprehensive forecasting process that is simple to update and offers valuable insights for well-informed decisions. This approach not only reduces disruptions to day-to-day operations but also promotes accountability, putting the company in a strong position to consistently pursue its growth goals.

Frank Fontneau, as Partner at RVR Consulting Group, has a record of positive business outcomes, excelling across departments and teams by understanding the operational and financial components of a business. Frank has effectively developed strategic plans, financial dashboards and forecasts, process improvement documentation, and training programs. Since 2012, Frank has led 500+ engagements to help business owners and leaders reach their goals. Highlights from these projects include the accretive integration of two simultaneous acquisitions that resulted in more than $27 million of synergy savings, the management of a software conversion for scalability to avoid millions of dollars in licensing fees, and the development of a financial and operational plan to avoid bankruptcy. rvrteam.com