On August 17, 2023

Financial Forecasting in a time of Supply Chain Uncertainty

Supply chain disruptions have become less of a rare occurrence and more of a manufacturing industry norm in recent years. While the cause of these disruptions can be both internal (supplier issues, financial insecurity, labor shortages, etc.) and external (political instability, natural disasters, regulation changes), the impacts can be challenging.  Unfortunately, this rising uncertainty comes with a hefty price tag, and manufacturers must develop strategies to meet these potential disruptions head-on.

Supply chain uncertainty can have a major impact on profit margin, chiefly due to the volatility of commodity price fluctuations and inventory challenges. Often, companies will purchase excess inventory to try to circumvent potential supply chain delays, and as a result must cover increased storage and carrying costs. For those that don’t keep excess inventory, supply chain disruptions often create the need for expensive expedited shipping and freight costs to ensure products are delivered as swiftly as possible. All of these challenges are complicated further by overarching project delays and costs associated with production downtime and underutilization of capacity.

Operational forecasting is a critical form of financial planning that allows manufacturers to anticipate potential supply chain disruptions or delays and plan accordingly. Innovative processes such as rolling forecasts allow you to make proactive financial decisions based on supply chain updates and communicate that information to stakeholders as needed. Often this involves utilizing past data, historical lead times, and supplier costs to develop accurate predictions for future rates. This also includes analyzing customer data to determine how demand volumes and trends may affect your needed inventory.

Comprehensive platforms like OneStream can streamline your operational planning and help you visualize complex patterns in easy-to-understand charts and reports. Leveraging OneStream’s Sensible Machine Learning can further aid in this forecasting process by adaptively analyzing dozens of interworking factors simultaneously. SML can help you make more informed predictions and arm you with a more accurate picture so you can make better production and inventory decisions – even in the midst of serious supply chain disruptions.

The financial benefits of supply chain forecasting are becoming more important by the quarter. Utilizing this form of financial planning allows you to adjust to and manage your fluctuating supply and demand at a pace that enables you to change priorities with speed and agility. This means that you can more accurately anticipate inventory levels and that will empower your operational teams to predict costs and delivery timelines with accuracy. Having this comprehensive information on hand also leads to stronger customer and vendor relationships, as any disruptions (and the business adjustments that you make) can be communicated efficiently to avoid customer dissatisfaction and minimize the ripple effect of inflicting them with their own supply chain uncertainty.

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