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
