Demand planning and forecasting is a process which, because of its intrinsic focus on “error”, too often invites misguided efforts at producing perfection. Like the alchemists’ quest for gold, the goal is illusory and may cost more than any benefit it yields. Consider that the result of demand planning is only profitable to the extent that it is actionable – that is, if links above or below in the participant’s supply chain are unable to respond to the data, it might be a purely academic exercise. Consider further that if the participant’s supply is already near-optimal, the benefit of any marginal incremental gains might be offset by the disproportionate effort required to effect those gains.
The idea of diminishing marginal returns is one which is easily understood as a concept, but too many forecasting and planning practitioners are anathema to their raison d’etre within an organization. And the mandate for forecasting perfection is often created by senior management; the very group who should be most aware of the cost/benefit of their organization’s activities. Any case for imperfect forecasting, therefore, must ultimately be underpinned by an incremental benefit.
The process that we undertook at Yokohama Tire (Canada) was as follows:
- Clearly identify the problem and demarcate the extent to which its resolution is actionable.
- Estimate the cost/benefit of its resolution and clearly apply a financial metric.
- Evaluate judgment inputs as a means to that end. By making use of existing business intelligence and ability which may not have been leveraged fully in the process, we precluded the need for additional investment in software, consultants or headcount.
During my upcoming presentation session at IBF’s San Francisco event at the end of April 2010, I will share the means by which we addressed each step of this process and, I hope, allow participants to learn from and avoid some of the mistakes we made along the way.
Of course, we would enjoy hearing your lessons learned on improving forecasting accuracy here. Looking forward to continuing a dialogue.
National Marketing Manager