Why 1% really matters

We often tend to underestimate the impact of a single percentage point. Some might say:

“Our prediction is at +/- 16%. We'd rather be cautious and ensure we have enough.”

While others say:

“Our prediction is at +/- 16%. We'd rather be cautious and avoid overproducing or overbuying.”

However, in a high-cost environment (raw materials, transportation, labor, inventory), even a small improvement can translate into significant financial gains. In other words, this caution comes at a cost. A surplus means unnecessary overproduction, while a shortfall indicates a lack of availability, resulting in missed sales opportunities—not to mention the impact on the company’s reputation.

A prudent rule would be to aim for as much accuracy as possible.

Let’s take a concrete example:

A manufacturing company with an annual production cost of $50M. → A 1% improvement in estimation (better forecasting, better capacity utilization) → = $500,000 in potential annual gains. Attention! This figure is valid for perishable goods that will be lost if not sold. Otherwise, it would at least represent 1% of the production being unnecessarily stored.

Where are the gains hiding?

🔹 Reduction of excess inventory

More accurate planning reduces the need for safety stock.

• Less immobilized capital
• Reduced losses (obsolescence, perishability). In sensitive industries (food, pharmaceuticals, fashion), finer planning reduces unsold items and waste.
• → Reduced waste = net savings
• Possible decrease in storage space requirements
• Reduction in transport costs

🔹 Improved customer service

• Better estimation leads to better delivery. Ensuring that customers have access to the products they want at the right time.
• Excess leads to returns.
• Shortages result in lost sales and dissatisfied customers facing empty shelves. Worse still, if the shelf is filled with a similar product they don't want, while the desired item is absent.
• An improved service rate, even by 1%, can mean more sales, increased customer loyalty, and fewer contractual penalties.

🔹 Human resource optimization

• Fewer last-minute changes = fewer overtime hours, less stress for teams, and more operational stability.
• With specialized labor, last-minute adjustments can be even more complex and costly, or perhaps even impossible.

And what cannot be calculated in advance but will still have an impact

There are several areas of reflection to identify the effects of discrepancies between estimation and actual demand.

Let us now discuss the aspects related to indirect impacts. While your organization adjusts to discrepancies between planning and actual demand, it operates in a reactive mode. It deploys additional effort such as:

• Special orders and emergency deliveries
• Adjustments to production schedules
• Organization of overtime or temporary layoffs
• Handling dissatisfaction among certain customers
• Changes in distribution

It is recognized that these actions come at a cost and affect the gross margin.

However, the entire organizational "line" is impacted. It reacts rather than operates efficiently.

As mentioned, an impact on the gross margin is likely. But an impact on employee morale is also possible.

Conclusion

We obviously do not have a quantified answer regarding a 1% improvement in forecast accuracy.

However, we wanted to highlight the importance of improving forecasts.

Each gain in accuracy corresponds to dollars saved, earned, and an increase in efficiency.

In the fiercely competitive context we face, this should not be overlooked.