Developing accurate forecasts is never easy. The current economic environment makes it even more challenging and many businesses have a bias to over forecast. At the same time, businesses need the most accurate volume forecast possible to enable effective planning and decision making. It is important to understand that this is a business issue, not a forecasting capability issue. Demand Planning does not have a crystal ball. There is no silver bullet. There is not one work process, one training class, one software solution, or one method of collecting assumptions that will eliminate forecast bias. We must approach the problem holistically and recognize that many basic elements must come together. While we must be aware of the current volatility and uncertainty of demand, the areas of focus are unchanged:
- Within Demand Planning, we must stick to the basics. Basic models, standard analysis techniques, and “normal” forecasting processes really work. The same things that improve forecast accuracy and reduce error in good times work now as well.
- Within a business, we must recognize that macro events and processes are the largest source of forecast bias in most businesses. Bias is not coming from our software solutions. Rather, it is macro assumptions, management over-rides, and other “big” decisions that lead to forecast bias. Addressing culture, behavior, and rewards are critical to eliminating bias.
- Within a market, we must better understand macro market trends. In the current economic environment we are seeing unexpected changes in market size and dramatic changes in customer, shopper, and consumer behavior. We need to better understand the relationship between market size, shipments, and share through collaboration with business partners.
Many businesses are dealing with persistent bias. It is an on-going problem that not only impacts business results, but also erodes Demand Planning credibility with the customers of the forecast. Eliminating forecast bias is difficult and no single approach works for all businesses. I will be covering some of these ideas in my Luncheon Keynote presentation and Executive Forum at the IBF Conference in Orlando. I hope they will spark your thinking and lead to dialog with others at the conference and with your business partners when you return home. I look forward to having the chance to talk with and learn from many forecasting professionals during the conference.
Demand Planning Global Process Leader
Procter & Gamble
See DICK CLARK Speak at The IBF’S: