Pouring Over the Data: Production Forecasting for Breweries
By Nick Amador on March 6, 2023
Craft breweries face the timeless challenge of balancing customer demands with operational profitability and efficiency. Production forecasting plays a crucial role in meeting this challenge by providing valuable insights into sales trends, consumer behaviour, and seasonal patterns, making it easy for breweries to navigate the road ahead.
Brewing teams can leverage historical data and predictive analytics tools to make informed decisions about production planning and inventory management. Forecasting methods — as discussed below — enable breweries to streamline their operations, optimize production schedules, and minimize costly errors.
In this article, we will dive into the importance of production forecasting for craft breweries, some common forecasting approaches, and the available tools to aid in forecasting optimal brewery performance.
What is forecasting, and why does it matter?
Production forecasting is an essential aspect of running a successful craft brewery. Accurate forecasting ensures that you have enough stock to meet customer demand while minimizing the risk of excess inventory or stock shortages. Forecasting also enables you to make informed decisions about production planning, such as when to start and stop production, how much to produce, and when to restock ingredients.
Inaccurate forecasting efforts on both sides (overproduction or underproduction) can have severe implications.
On one hand, overproduction will result in excess inventory, leading to wastage, higher storage costs, and lower profit margins. On the other, underproduction will lead to stock shortages, unhappy customers, and a loss of sales. In addition to these, demand misjudgement for particular products can result in dead stock, which can be a significant financial burden on small craft breweries.
Production forecasting allows you to anticipate and respond to changes in demand, such as seasonal patterns or special events (think: big football games), and adjust your production schedule accordingly. This helps to ensure that you are producing the right amount of beer at the right time and enables you to avoid stock shortages or overproduction.
Production forecasting is also crucial for effective inventory management. By forecasting demand, breweries can determine the optimal inventory levels of raw materials and finished goods. This helps to minimize inventory carrying costs, improve cash flow, and optimize warehouse space.
Above all else, demand and production forecasting will help brewing teams maintain a competitive edge in the industry — something easier said than done these days.
How to approach craft beer production forecasting
There are several popular approaches to production forecasting for craft breweries, including relying on historical data and utilizing predictive analytics.
Historical Sales & Inventory Data
Relying on historical data is a traditional forecasting method that involves analyzing past sales data to predict future demand. This approach assumes that future demand will be similar to past demand, taking into account any known changes in market conditions, such as seasonal patterns or changes in consumer behaviour. Historical data forecasting can be useful for short-term forecasting, such as predicting demand for the next month or quarter. This method is best suited for established breweries with a track record of sales and consistent demand patterns.
Historical data forecasting is relatively straightforward and requires minimal technical expertise, making it a popular choice for small to medium-sized breweries. However, it may not account for unexpected changes in demand or shifts in consumer behaviour.
Predictive Analytics
Predictive analytics, on the other hand, involves using advanced statistical models and software to forecast future demand based on a range of data inputs, including historical sales data, social media activity, weather patterns, and consumer demographics. Predictive analytics can provide more accurate and detailed forecasts than relying solely on historical data, as it takes into account a broader range of factors. This method is best suited for breweries looking to forecast demand over longer periods, such as 6-12 months.
Predictive analytics can provide more accurate and detailed forecasts by analyzing a broader range of data inputs. Still, it requires specialized skills and resources, making it a more expensive option for smaller breweries.
Choosing the most suitable forecasting approach for your team depends on several factors, such as the size of the brewery, the desired forecasting horizon, and the availability of data. Both historical data and predictive analytics methods can provide valuable insights into demand patterns, allowing you to make informed decisions about production planning and inventory management.
Forecasting tools for craft breweries
There are several forecasting tools available to craft breweries. That said, the most popular (and accessible) are inventory management and sales forecasting software.
Inventory management software is a useful tool for breweries looking to optimize their inventory levels and reduce waste. It provides real-time insights into inventory levels, enabling breweries to maintain optimal stock levels and prevent stockouts or excess inventory. Inventory management software can also automate the ordering process, saving time and minimizing human error. This tool is best suited for small to medium-sized breweries with a limited range of products.
Sales forecasting software provides detailed insights into sales data, enabling breweries to forecast demand and adjust their production accordingly. It can help breweries identify patterns in sales data, allowing them to make informed decisions about production planning. A recent article by Toast provides a good breakdown of some seasonal trends or consumer behaviour that you might be able to expect across in your taproom and across your on-premise venues.
Sales forecasting software can also provide insights into pricing strategies, enabling breweries to optimize pricing and maximize profit margins. This tool is best suited for larger breweries with a wide range of products and a more significant volume of sales data.
Another forecasting tool that is gaining popularity in the craft beer industry is machine learning. Machine learning algorithms can analyze large volumes of data, including inventory and sales data, social media activity, and weather patterns, to predict future demand accurately. This tool is best suited for breweries looking to forecast demand over longer periods and have access to large volumes of data. However, implementing machine learning algorithms can be expensive and requires specialized skills and resources.
For most breweries, a solid mix of both inventory and sales data will make for the most reliable forecasting information. At Kegshoe, we’ve built industry-leading inventory & sales software to help. From managing current inventory and historical production levels to key sales interactions and upcoming order requirements, understanding forward-looking production requirements have never been easier. Contact our team today to learn more.
Calculating your production requirements moving forward
Now that we’ve covered the forecasting approaches and tools available to your team, let’s take a look at some specific calculations that you can lean on for the busy summer season ahead:
Sales Growth Rate:
(Current Year Sales - Previous Year Sales) / Previous Year Sales
This formula helps you calculate the rate of growth in your sales. You can use this formula to predict future sales based on the historical sales data.
Seasonal Index:
(Average Monthly Sales / Total Annual Sales) x 100
This formula helps you calculate the seasonal index for each month of the year. You can use this index to adjust your forecasts to account for seasonal fluctuations in demand.
Days of Inventory:
(Inventory Value / Cost of Goods Sold) x 365
This formula helps you calculate the number of days it takes for you to sell your inventory. You can use this data to adjust your production schedule and prevent overstocking or stock-outs.
Core Sales Data Points
When it comes to sales data points, there are several key metrics that a brewery should be tracking, including:
Total sales volume: This is the total volume of beer sold over a given period of time. You can use this data to calculate your sales growth rate.
Sales by product: This is the amount of each product sold over a given period of time. You can use this data to identify which products are selling well and adjust your production schedule accordingly.
Sales by channel: This is the amount of beer sold through each distribution channel (e.g., taproom, distributors, online). You can use this data to identify which channels are driving the most sales and adjust your marketing strategy accordingly.
Sales by geography: This is the amount of beer sold in each geographic region. You can use this data to identify which regions are driving the most sales and adjust your distribution strategy accordingly.
Closing Thoughts
In a dynamic craft beer industry, it's important to recognize that production forecasting is an ongoing process, requiring continuous monitoring and adjustment. As market conditions change and customer demand evolves, breweries must adapt their forecasting strategies to ensure they remain competitive and profitable. Breweries can also benefit from working with industry experts and engaging in professional development opportunities to stay up-to-date with the latest forecasting trends and best practices.
Whether you're a small, up-and-coming brewery or a large, established player, taking the time to develop a robust forecasting strategy is a smart investment that will pay dividends in the long run.