Let’s face it. Not all of us possess a DeLorean time machine stashed away in our garage that would enable us to travel to any time period in the future (or past). Till the moment comes when we can just buckle in and set the dial to 10 years from now, we need to equip ourselves with the right tools and skills to forecast for the future.
Improving your demand forecast is one of the best things you can do for your sales and operations planning.
This was the theme of the recent sales & operations (S&OP) webinar hosted by DELMIA Quintiq and EyeOn. The live, one-hour webinar was led by Dr. Michiel Jansen, senior solutions consultant at DELMIA Quintiq, and Dr. Freek Aertsen, managing partner at EyeOn. The official hashtag of the event was #DemandPlan2013.
With two experts in the fields of forecasting and demand planning, valuable insights were broadcast throughout the webinar. Watch the live recording of the webinar.
Read on for the key takeaways from the event.
Forecasts are never 100% accurate
Research shows that most times, only a small percentage of forecasting is accurate. Why is this? Could it be that we didn’t consider historical data and predictive analytics when forecasting? Not exactly. The truth is, we may never achieve a 100% accurate forecast but we can reduce the gap between the forecast and actual outcome. Dr. Aertsen describes a four-step process to fine-tune your forecasting results:
1. Collaborate
Information is key. You need to have as much data as possible from all areas of your supply chain. This is crucial for obtaining high quality demand signals and supply possibilities. Build relationships with your suppliers, and channel partners, customers and even internal departments such as sales & marketing. Collaboration between all links in your supply chain is essential to achieving solid forecast accuracy.
2. Forecast
Forecast leaders with higher #forecast accuracy have better service & lower stocks, says @FreekAertsen #DemandPlan2013
— DELMIA Quintiq (@Quintiq) September 19, 2013
It’s not rocket science. Dr. Aertsen explains that investing in forecasting or demand improvement pays off. So how do you go about becoming an expert in forecasting?
First, supply chain complexity isn’t a factor. Take a look at the figure below. EyeOn conducted a benchmark study with 90 companies to come up with a complexity measurement scale. This scale compared companies’ complexity against the accuracy of their forecasts. It was found that companies with a complexity of more than 60% showed an accuracy of at least 80% in their forecasts. The conclusion? You can still achieve an accurate forecast regardless of the complexity of your business.
Second, these companies that achieved a forecast accuracy of 80% and more had typically designed and implemented a fit-for-use process. This process mitigates the impact of complexities on demand signals and is unique to each business.
Dr. Aertsen goes on to describe crowd forecasting as a great method to determine demand for new consumer-based products. Information collected from crowd forecasting contributes to a more accurate demand forecast.
Crowd #forecasting the new way to forecast the success of new products #DemandPlan2013
— DELMIA Quintiq (@Quintiq) September 19, 2013
What about your planners? Dr. Aertsen mentions that leaders in forecasting employ high quality planners with the right skill sets. Planners must have the ability to critically assess forecast information received. He went on to explain a study showing that planners who make large adjustments to the original forecast usually add more value. But planners who make small adjustments to the forecast tend to show little improvement and could even deteriorate the forecast.
The bottom line: only hire planners who know what needs to be changed.
3. Monitor and control
A process to monitor and control deviations in demand and supply is essential to effective forecasting. Strict integration is needed in your operational systems to quickly respond to unexpected changes in demand and/or supply. Flexibility is key.
4. Shape
So you’ve got the first three steps down. Now comes shaping. You need to establish a process to enable quick, data-driven decisions that would optimize profit, based on the alerts received in monitoring and control. These decisions would shape demand management in your sales and operations process.
This is a two-part series so unless your flux capacitor is filled with enough plutonium to travel through time, read the second part of this webinar recap.
What are your thoughts on demand forecasting? Leave a comment below or watch the live recording of the webinar.
Follow @Quintiq, @FreekAertsen and @EyeOnPlanning on Twitter.
