I’ll venture to guess that if you are reading this, you’re probably already sold on the idea of a forecasting function. That is, you understand the value it provides to the whole organization. Unfortunately, not everybody sees it that way.
Let’s face it, many executives have never experienced the near Utopian results that are promised by forecasting and are hesitant to give it more than lip-service. After all, when they think of new software, consultants and employees, dollar signs start to swirl in their head with little to no perceived value added. So how do we go about selling it?
First, let’s look at some improvement opportunities that your executives can wrap their minds around:
1. Inventory
More accurate forecasts and a properly set up planning system result in proper (not necessarily lower) inventory levels. Through forecast improvements, I have always experienced overall decreases in inventory levels. This means not only few dollars tied up collecting dust, but also less risk of obsolescence, more efficient Warehouse operations, fewer damaged goods, etc. At one company, I was able to completely eliminate an off-site warehouse for raw materials and reduced finished goods and sub-assembly parts so drastically that we cancelled plans to open a third production plant. Lower inventory levels also help to expose issues that are otherwise masked or easily covered up. As the saying goes, you don’t know where the rocks are until the water recedes.
2. Customer Service
Sometimes an improved forecast identifies a need for higher (proper) inventory levels. The result will be higher fulfillments and therefore higher Customer Satisfaction. Whether higher or lower, the goal is to have the right inventory levels. A lost sale is never recovered and a lost customer can take years to make up. Caution: don’t immediately jump to more inventory as a solution when other factors can offset it, such as reduced lead-times or change-over times.
3. Operations
Improved forecasting aids in Capacity Planning. Warehouse space, production equipment, level-loading needs, workforce levels, and longer range facility and equipment needs are some of the ways good forecasting helps executives prepare for success. All of these capacity constraints are expensive and can be quite difficult to change. No one wants to find out that they need to order three new production lines… six months ago. (Yes, that happened.)
4. Sales & Marketing
In addition to the aforementioned Customer Service benefits, good forecasting and analysis facilitates a successful product launch. Likewise, a lack of good numbers and launch assumptions can absolutely doom a new product, or at least result in significant lost revenue and unhappy customers. Along with this, proper analysis provides insight on changing trends, product mix, attachment rates, and life-cycle planning.
5. Purchasing
A good forecast leads to good supplier partnerships. By communicating a realistic purchase plan to your suppliers, they benefit in all of the same ways listed above. When you stop jerking your suppliers around (expedite this order, cancel this order, wash, rinse, repeat), they will service you better, accommodate special requests more willingly, and they will value the relationship more than ever. But wait! It gets better! Your negotiating position just drastically improved! (Three exclamation marks in a row!) For all of the same reasons stated above, your supplier is now more efficient (lower costs) and desires more than ever to have customers like you.
All of that is well and good, but to the cynical executive it may be just another bag of promises waiting to disappoint (like low-fat, gluten-free cookies on your birthday). What is a highly capable (yet humble) manager to do? You have to prove it!
Getting Started In Forecasting With Limited Resources
Before asking for a new employee (or department), start with what you have now and do what you can. Maybe you don’t have the bandwidth to forecast for the whole company, but perhaps you can focus on one product line. Perhaps the level of analysis isn’t up to par with what you are accustomed to, but something is better than nothing. Take the time now to measure the historical and current forecast accuracy (if a forecast exists at all), inventory levels, service levels, etc., all for this one line, then improve it. Nothing sells better than success be it lower inventory, higher fulfillment rates or a successful product launch. By getting one project under your belt, you can demonstrate the measurable results and quantify the savings to the organization.
This more than anything can help sell the further benefit of taking it all to the next level by investing in someone nerdier than me (no offense), who lives and breathes this stuff and loves to do the type of analysis warranted. I’ve been able to make significant improvements and gain cost savings all by myself but I’ve been able to do just as much by knowing my limitations and getting to right person for the job. Let me be clear, forecasting and analytics is not a role you just tack on to someone who has a little free time – find someone who understands it and gets excited when they talk about it and all will be right with the world.