Regardless of whether you’re in the automotive, industrial manufacturing or chemical industry, you probably already are aware of the risks associated with not factoring in the relevant leading indicators in your forecasts.
Are you having trouble identifying the relevant leading indicators or KPIs? Have you experienced that your identified indicators or KPIs are starting to point in different directions?
Here are some of the key leading indicators worth integrating to generate your forecasts. (Let us know if you’d like to get a personalized demo to figure out what your specific leading indicators are.)
The beauty of using Indicio is being able to test out the relevancy of these leading indicators, and analyze and confirm exactly which of these leading indicators or market drivers are relevant to specifically your business.
This is key so that you don’t end up missing out on forecast accuracy and the ability to detect market trend shifts.
Caveat! It’s important to note that the significance and weight of these indicators will vary depending on the specific industry and region being forecasted.
- Purchasing Managers' Index (PMI): This indicator measures the activity level of purchasing managers in the manufacturing sector and can provide insight into future manufacturing activity. A PMI above 50 indicates expansion, while a PMI below 50 indicates contraction.
- Institute for Supply Management (ISM) Manufacturing Index: Similar to PMI, it measures the activity level of purchasing managers in the manufacturing sector and can provide insight into future manufacturing activity.
- Industrial Production: This indicator measures the output of the manufacturing, mining and electric and gas utilities industries and can provide insight into future manufacturing activity.
- New Orders: This indicator measures the value of new orders for durable and non-durable goods and can provide insight into future manufacturing activity.
- Exports: The level of exports can indicate the demand for industrial manufacturing products.
- Interest rate: The interest rate can impact the cost of borrowing, which can affect companies' ability to invest in new machinery and expand their operations.
- GDP growth: The GDP growth rate can indicate the overall health of an economy and the level of demand for goods and services.
- Global economic indicators: such as the level of economic activity and the level of economic growth in key trading partners.
- Political and geopolitical factors: such as trade agreements, tariffs, and geopolitical risks.
Some extra tips to keep in mind when applying leading indicators to your forecasts:
1. Even if a certain leading indicator has proven to be consistent towards your forecast, (nothing is static, the macroeconomic environment sure isn’t.) Monitor these indicators over time to identify trends and patterns, and adjust your forecasts accordingly.
2. Establish a baseline and play out different scenarios to get a gauge of how an optimistic or pessimistic scenario would present itself and its impact on your demand and sales.
What’s also crucial is understanding that it’s key that your internal data is present, updated and complete. We provided some tips in another video on how to ensure/maintain clean data.