In many manufacturing industries, there is often the presence of inertia.
What’s the impact of this?
One of the primary impacts of inertia is the reduced ability to respond swiftly to market changes. When it takes a long time for production adjustments to be reflected in the market, there is a struggle to keep up with and quickly adapt to rapidly evolving consumer demands or technological advancements.
By forecasting on a longer time horizon, you’ll get more accurate insights into future demand, allowing you to adjust production volume and parallel processes well in advance.
During this period, you’ll gain earlier signals on how to adapt production with the changing market environment. This foresight can be critical in ensuring that new products or changes in production align with market needs when they are ready for launch.
With Indicio, you can easily input drivers that you’d like to “watch”.
In this case, we’re forecasting the passenger car sales in Germany.
(*The methodology used in Indicio is applicable across multiple industries.)
Ready to run a forecast and find out which indicators are the most relevant? Book a session here.
The possibility to include your own internal sales data, marketing activities also adds another key dimension to the analysis. (You get access to a multitude of macroeconomic indicators in Indicio, but the real value lies in weighing in the effect of both your historical and current internal insights) If it proves to hold the highest significance value, that gives you an immediate indication of where you can allocate higher budget or optimize.)
In under 10 seconds, we see exactly which indicators hold strong significance towards predicting the total passenger car sales in Germany.
Here's the value of why you should forecast on a longer time horizon
We’ve now seen that not all signals are equal. And this rings even truer when forecasting on a longer time horizon. Tying back to the value of forecasting on a longer time horizon, let’s look at how an indicator that was identified as having a negative significance to forecasted sales a month ahead turned on its head, and presented as having a strong effect a quarter later.
We can see that there is a negative contribution from the “Europe 2020 Indicators, Resource Efficiency Indicators, Modal Split of Passenger Transport, Passenger Cars” variable on the forecasted sales.
This variable serves as a comprehensive leading indicator that typically guides policy-making, business strategy, and investment decisions, particularly in the context of sustainable development and transportation trends.
However, looking at 3 months ahead, we can see that the same variable has the exact opposite contribution to the forecasted registration numbers.
Given the dynamic nature of these indicators, by closely monitoring these signals, manufacturing companies can gain valuable lead time to adjust their production strategies.
Here are some other indicators that you could easily test run the full spectrum of:
- Economic Indicators: Broader economic trends, such as shifts in GDP, unemployment rates, or consumer spending patterns, can be precursors to changes in market demand.
- Online Analytics and Search Trends: Monitoring online search trends and website analytics can provide early insights into changing consumer interests and questions.
- Innovation in Adjacent Markets: Developments in related industries can sometimes have crossover impacts, signaling opportunities for innovation or diversification.
- Consumer Behavior Trends: Changes in consumer preferences, buying habits, and feedback can be early indicators of a need for product adaptation. Social media sentiment analysis, customer reviews, and sales data can provide valuable insights into these trends.
- Market Demand Fluctuations: A significant increase or decrease in product demand, as reflected in sales data and order volumes, can signal market shifts. Monitoring these trends helps in adjusting production volumes accordingly.
- Competitor Actions: New product launches, pricing changes, or marketing campaigns by competitors can indicate shifts in the market landscape. Keeping an eye on competitors helps anticipate market movements and adapt strategies.
- Technological Advancements: Breakthroughs in technology can rapidly change production processes or product functionalities. Staying abreast of technological trends within and outside the industry is crucial.
- Supply Chain Signals: Changes in the availability or cost of raw materials, components, or logistics can indicate upcoming challenges or opportunities in production. Maintaining a close relationship with suppliers for early warnings is beneficial.
- Regulatory Changes: Anticipating and responding to new regulations or compliance requirements can significantly impact production, especially in highly regulated industries.
It’s important to note that long-term forecasting comes with its own set of challenges.
Let’s face it - the further out the forecast, the greater the level of uncertainty. But, this uncertainty can be mitigated by regularly updating forecasts as new data becomes available and by using scenario planning to explore a range of possible futures. Building multiple scenarios, and mapping out both positive and negative outlooks gives you the opportunity to be agile, and quickly adapt your tactical plans.
Enter scenario analysis.
Here’s how it could look if electricity and gas prices see a decline in March 2024. We input this as a plausible scenario and play out its effects on the coming months.
Looking a month ahead after weighing in the impact of a decline in electricity and gas prices, there is a reasonable substantial decline (approximately 9%) on the weighted forecasted registrations.
Looking 2 - 3 months ahead, the effect of this decrease in electricity and gas prices seen on the forecasted registrations numbers is predicted to dwindle, suggesting that the predicted registration numbers will see an upward trend from July 2024 onwards at this predicted electricity and gas price point.
With this information, you get a full overview over the development of this variable’s impact on your forecasted figures, giving you a headstart and intel to tweak tactical plans ahead of time.