There is an age-old debate in demand planning: should you strive to be a “one number company” where all functions work to the same forecast. The idea is that a one number forecast creates alignment and that the whole company works to the same set of assumptions. But some say it creates more risk, and others say the idea of companies working to a one number is really just a myth.
I personally do not understand what the fuss is about and believe there both is a right and wrong answer here. It depends on who you are, where you are in the organization, and what you are doing with the number. Taking these things into consideration, you absolutely need a one number attitude.
I think the debate may come from not defining what we mean by one number. If you mean that what you purchase matches exactly the unconstrained forecast which matches exactly what we report in financials, or if you mean that you march to a signal point forecast and ignore uncertainty – the answer is no, you don’t want that!
If you mean that you are generating the same baseline forecast for the entire company and translating it for other functions using the same set of assumptions or analysis – the answer is yes, you want that!
Besides having everyone singing off the same hymnal, this coordination ensures best practices in data gathering and analysis, modeling, managing assumptions, and, just as important, monitoring performance.
What Is A One Number Attitude?
A one number attitude is more than a consensus forecast, it is a mindset that starts from the very beginning. In defining the need of a forecast or any analysis, consensus is needed that you are working on the same problem. This too can be the same root problem with many possible tactical decisions related to it, and the analysis created to solve the problem can have many different uses by different roles and functions. The issue occurs when each need and role define their own problem in silos, driving different analysis that run counter to other competing analyses from other functions.
A one number attitude company has a core strategy and an aligned focus that relates to individual functional needs and decisions.
Data can mean something entirely different depending on where you pull it from, with what filters, at what time, and what aggregation. In gathering data and inputs, it is important to have not only a single set of truth, but consensus on what and how things are assembled.
This can be the difference between looking at shipments, orders or POS data, and how much data you are looking at to analyze sales sentiment. Problems are sure to arise when different functions are operating off of their own data sets and inputs are collected in vacuums. A one number attitude company has the same data and base assumptions and coordinates best practices on transforming or manipulating the inputs that you can tie back to original data.
One Number Forecasting & Planning Means Centralized Quantitative Analysis
You can have the same set of data and same set of assumptions and with different techniques come up with very wide and different results. Sometimes we see different functions doing different analyses using different principles using different data – even though the analyses serve similar purposes. One of the key things often forgotten here is judgment or expert opinion is used as a forecasting method and used widely without realizing the impacts. Some of the best forecasts are derailed or overridden based on someone else looking at the same data and operating off of intuition instead of a one set of number attitude.
A one number attitude company strives for centralized quantitative analysis whenever possible and is more analytically driven and performs analysis using the same principles and systems. They make sure to tie all the modeling and techniques back to the purpose of the forecast.
Not Planning To One Number, But To The Same Range
A one number attitude enables the entire organization to plan based on the same range of possibilities, assumptions, risk, and upsides. It provides the foundation for Finance, Production, Logistics, and Supply Chain to all work outside of their silos.
It gives way to meaningful and productive conversions around true planning and impacts of what each function may do. In this scenario, the same forecast that drives Operations and Sales and Marketing is now driving gross margin, variable cost, and cash flow. While there may be allowances and other financial adjustments to the sales forecast, using the same baseline allows you understand the drivers and variables better, and how they all connect to each other.
Forecasting is About Uncertainty & Uncertainty Is Never Just One Number
Oftentimes, companies get huge up on the term “one number” – the truth is a train wreck on either side of the tracks is just as bad. Forecasting involves uncertainty and uncertainty is never a single number, and planning to a single number guarantee problems. On the other side not being on a single page and aligning to the same business goals, assumptions, data, and modeling to better understand and plan for the uncertainty is just as dangerous. It is the responsibility of the analyst or demand planner to present risk and assumptions that went into the analysis and it is incumbent upon users of those insights to think through all options, combinations, and permutations of potential plans.
One Number Planning Requires Coming Together
Such results do not come without challenges, however. To develop a one number culture, companies must break down information silos and eliminate multiple versions of the truth. This only happens when stakeholders throughout the organization openly share data and information, and that means the long-standing gap between functions must be bridged.
Everyone in the process has to stay very close to one another in sharing information and data coming from various parts of the organization. Often, Demand Planning is central in holding not only the entire process together but also the information to run it. Ultimately, when the forecast is tied to sound predictive analytics, and the same assumptions and data and analysis, executives have more timely and accurate information that allows them to make better decisions.