We hear quite often, that forecasting is a waste of time. People often cite the weatherman and laugh at forecasts and forecasting as a productive process.
As long as you don’t leave your demand forecasting to the weather man, I believe we can do very well. Most supply chain problems originate by ignoring the forecasting that is happening through out the organization. In a survey I remember reading a couple of years ago, on average 50% of the people in an organization were forecasting something or other.
If the forecasting process is bad, fix it! You ignore and move on at your own peril!
It is simply impossible to ignore the forecasts, because the ROC (Rest of the Company) is hard at work forecasting something or other.
Even folks in manufacturing who can badmouth forecasting may be using an average run rate of some sort to determine their inventory calculations. This run-rate determination is actually a forecast, the average, although they think it is no forecast.
If there is a reasonably good demand planning process installed in any organization, we can establish this will easily beat out the “run-rate” or any other average hands down.
A good demand planning process does not just rely on statistical modeling. It leverages the information from the various players in the rest of the company. My good friend and my manager at Schering Plough coined the term ROC – Rest of the Company.
The ROC has information.
The ROC also forecasts.
ROC forecasts for different purposes.
For us demand planners focused on the supply chain and mired in the daily fires of the live order stream and its deployment, we only think of the supply chain plan as our reality. We wonder what does the ROC do other than feeding us some useful info to make the widgets we need to demand plan and produce.
Inventory is a problem but is only one of many problems!
Organizations have a variety of challenges and constraints to solve so they can thrive and grow. Organizations need to plan for the medium to long-term and manage the business accordingly. At least 50% of the ROC forecasts but NOT necessarily for inventory purposes.
Senior management needs to forecast an EPS for investors and need to hit it within a reasonable threshold. Companies need a long-term forecast to assess what they need in capital investment and where and how to build the facilities for expansion. Even HR needs a forecast.
Thinking every function will be forecasting for the supply chain is like the Dilbert Cartoon “Sure – I will drop everything else and will focus on your problem.”
So forecasting and planning is embedded in various functions and various forms through out the organization and is unavoidable. You cannot tell people it is a real problem so they should stop it! The key is how to leverage the forecasting responsibility and accountability already installed into a holistic process that can let you piggy back and obtain a supply chain forecast for your short-term and long-term planning.
Ignoring the corporate forecasting machine and creating an isolated forecast or an inventory deployment algorithm is a sure way to significant troubles – what we at Demand Planning LLC caution as the fragmented planning process or the lack of the often glorified “S&OP” process.
So in summary, there is no issue with the ROC or 50% of the ROC involved in forecasting. The real problem is when supply chain decides to ignore the forecast or the forecasting process that is already etched in the ROC(k) and decide to move on in isolation.
Demand Planning LLC does use and recommend advanced algorithms for demand forecasting and leveraging customer input. But that is only half our story.
We work with Sales, Marketing, Supply chain and Senior management to drive a holistic process to leverage demand information and build forecasting processes that are used across most of the organization.
We salute the hero who decides to use a demand forecast that is only 50% accurate rather than ignoring or side-stepping the forecast. Accuracy of the forecast is secondary.
Start with the forecast first and make plans and contingencies for the extent of the error. Improve on the forecast by quizzing, dialoguing, negotiating and working with the ROC. This should be well emphasized in the basics of supply chain management.
Join hands together to move the ROC to make a better demand plan!