Most executives agree that the ability to generate an accurate forecast has a significant impact on longterm business success. The forecast directly affects an organization’s ability to satisfy customers, manage resources and grow the business cost effectively. An improvement in forecast accuracy—even just one percent—can have a ripple effect across the business including significantly reducing inventory buffers, obsolete products, expedited shipments, distribution center space, and non-value added work. In turn, these improvements can translate into higher customer fill rates, customer satisfaction and ultimately more revenue with higher margins.
According to a Gartner report in 2017, a 1% Improvement in Forecast Accuracy Leads to…
· 2.4% decrease in order-to-deliver days (cycle time)
· 0.4% increase in perfect order performance (on time, in full)
· 2.7% reduction in finished goods inventory (days)
· 3.2% reduction in transportation costs (percent of sales)
· 3.9% reduction in inventory obsolescence (percent of inventory value)
If you have experience forecasting demand for products or services, you know that obtaining consistently good forecast accuracy is a mix of science and experience. Here are a few steps demand planners can take to improve the demand planning process and as a result, forecast accuracy:
Tip 1: Learn from your peers. There is abundant material available on how other companies have improved their demand planning capabilities. Use it
Tip 2: Build the business case. To gain support for improving forecast capabilities, supply chain practitioners must show the relationship between forecast accuracy and shareholder value. Use the Dupont Equation on page 5 to articulate how an improvement in forecast accuracy impacts company performance.
Tip 3: Plan and manage talent. Creating a good sales forecast requires several skills: a strong understanding of statistics, in-depth product and customer knowledge, and experience in combining data to develop a forecast that all business functions can use. Companies need a well-defined strategy to acquire and retain planning talent.
Tip 4: Engage analytics: There are more than 700 key performance indicator (KPI) measures available that can simply overwhelm a planner. Combined with the quantity of both structured and unstructured data available from internal and external systems, planners need an engaging and intuitive analytics platform to surface the relevant information and provide guidance in any areas that require attention.
Tip 5: Identify an executive champion: Without an executive champion and clear support from executive management, it’s tough to achieve significant forecast accuracy improvements.
Tip 6: Eliminate spreadsheets: Studies show that spreadsheets provide inadequate demand planning functionality and are riddled with errors. Get rid of them!
Tip 7: Use a mix of forecasting techniques: A major ingredient in forecasting success is the ability to apply a series of forecasting techniques tuned to perform best at different phases of the product life cycle. See the next page for a convenient list of eight top forecasting methods.
Article contributed by Logility. The original article can be found at www.logility.com