One of the fundamental laws of economics is supply & demand. For anyone needing a ECON 101 refresher, the law of supply and demand is the inversely proportional relationship between the supply of an item & the demand for that item. Understanding the dynamics of this law is pivotal to your farm’s production schedule - The timetable for the use of resources and processes required by a business to produce goods or provide services. But how exactly does this law factor into your farm’s operations?
Great question! When forecasting how much we’ll sell, the law of supply and demand is your best friend. How about an example? Let’s consider a farmer who is seeking a foundation for how to conduct operations for next season. There are several questions that need to be answered to draw these conclusions: How much do we think people will buy? Based on that number, do we have the capacity to deliver that many? How many seeds will we need, how many lots will be taken up, how long are the grow cycles? Once we’ve grown the forecasted number of products, do we have the infrastructure to deliver efficiently to contracted customers? (P.S. we wrote a post diving into how Farm Management Software helps answer these questions in-depth here). With the answers to these questions comes the ability to create accurate forecasts for potential sales numbers, numbers that can help mitigate the potential of having too much or too little inventory for actual demand. It can even help you improve margins by using this information to better understand price elasticity based on projected supply and demand.
As important as these numbers are, they are equally hard to find. While it’s possible to base this information off market trends, other farmers' predictions, and sources of data like the USDA World Agricultural Supply and Demand Estimate, many of these methods are unfit to tailor to your dynamic business needs. That in mind, certain Farm Management Software (FMS) is centered around helping make this process easier, using your former sales data to help identify sales trends in your operations & give internal data to use in conjunction with market trends.
But what ways can it do this, and how can it benefit your business?
Historical data & analytics
One of the best ways to move forward is to look backwards. Data analytics are broken into two categories - forwards & backwards. We wrote an in-depth piece on this a while back to better explain the difference, but to keep it simple, backward data analytics are focused on what has happened, and forward data analytics are focused on what will happen. In the case of data forecasting, we need to look at past data to help us predict what will happen in the future.
How would this look back at historical data work with FMS? Consider another example here: Before planting for the season, you want to consider whether to use more lots for romaine lettuce or spinach. While it may seem like a simple question of which sells for more & will net more money, there are several moving pieces here that need to be considered: How much inventory space do I have? What’s the shelf life of each product? How many inventory turns did I have last post-harvest for each product? We’re there any trends I saw last season that may move into this season? While many farmers use excel and other spreadsheets to monitor their inventory, they are lacking the needed context of trends, correlations with other operational factors, easy-access data analysis tools that don’t require complicated knowledge of functions, as well as the dynamism of a connected system that updates as changes occur rather than when changes are made manually.
With the connection of hundreds of data points & data analytics tools, FMS tools give farmers greater flexibility in finding the signals amongst the noise that can give you a better understanding of supply and demand forecasting.
But with this newfound ability to forecast, what are some benefits brought to your farm?
Effective demand forecasting
Demand forecasting is the process of using historical data to develop an estimate of an expected forecast of customer demand. Simply, how much x product must I produce to meet the number of paying customers? This form of forecasting is incremental in almost all sectors, and has led to numerous success stories for brands like Nestle & Kimberly-Clark.
Demand forecasting comes in many forms (passive, active, short-term, long-term, external, internal, etc) and can come from many different sources (expert analysis, sales force opinions, market research, extrapolation of past data, etc). How does this factor into your FMS? First, a good FMS will be a central hub of all past data in your operation, helping you quickly review past sales, trends within sales figures, and granting you tools to conduct statistical analytics with your data (we wrote a piece about data analytics for your farm as well). Some examples of how this may look for your farm:
Based on the 10,000 units sold last season, how many will we sell next season?
Given the 20% decline in sales YoY, will that trend carry into next season?
What social changes (consumer interest, natural disasters, etc) will have an impact on demand? How much of an impact?
Questions like this are a dime a dozen, but the ability to answer them is worth your weight in gold. Having a good FMS, mixed with industry knowledge, could be the competitive advantage your farm could leverage into domination in your space. If you have more questions about how this could work for your farm, set a time with us to chat about your specific questions and needs!
Easier production scheduling
Once you’ve grasped the expected consumer demand, the next step is matching it with your internal capabilities to create an effective production schedule. While the ideas of producing exactly what’s demanded is ideal, it’s not always realistic. In the case the expected consumer demand is 10,000,000 pounds of strawberries, but your growth capacity is far less, planning production to hit that figure is fruitless. So how does one develop an effective production schedule? It begins with an understanding of specific factors in your production:
How many seeds can you plant?
What day do these need to be planted?
What’s the expected germination percentage?
How long is the grow cycle?
How much shelf life does each product have?
How quickly does inventory turn?
This production information can then be compiled to create a cadence of when seeds need to be planted, the estimated grow cycle, and the estimated time between harvest and sale.
With Farm Management Software, you have the ability to have all that information in one place, lining up the schedule for you in real time while helping keep track of what phase products are currently in. This information is instrumental in then being able to optimize your order fulfillment.
Efficient order fulfillment
As demand forecasting focuses on demand (obviously), that’s only one side of the coin. When considering forecasting in terms of supply, we must consider order fulfillment. Order fulfillment covers the complete process from when a sale takes place all the way through delivery to your customer. This is critical to any farm looking to deliver their supply to those demanding goods. A solid order fulfillment system has been one of the key differentiators that have created behemoths like Amazon & Shopify. And while your FMS will not be the solution to handle the step-by-step process of moving products from pre-harvest to consumer shopping carts, it is the tool to help bring clarity to what you’ll need to do so.
Order fulfillment brings a litany of questions:
How many SKU’s does your business sell?
How many orders do you send out to each distributor?
What’s the cadence of inventory turns?
How long is the shelf-life of your products, and how does that align with fulfillment cadences?
A FMS can make the process of understanding each of these elements exponentially easier. These systems allow you to host data from both pre- and post-harvest, giving you easy access to operational data on a granular level. Information like product shelf-life, recurring order templates, inventory numbers updated in real time, among other elements of your operations to give you a full understanding of how well you’re equipped to fulfill consumer demands.
Master your forecasting
Forecasting can seem like a daunting task, but with the right tools this process becomes a casual part of operations. Organizations that master the ability to predict the future tend to own it; is your organization on track to do so? Whether the answer to that question is yes or no, we’d love to hear from you to know what you want to know more about or what tactics you’ve employed to find success in your organization’s sales forecasting pursuits!
Now go out there and make those forecasts the best they’ve ever been!