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If Forecasts are Wrong – Why do we Need Them?

By
Reveal

The one thing we know for sure is a forecast can be wrong, so then why are they so important?  

Supply chains thrive on data, in this case, demand.  Rules in SAP (or any ERP system) are designed to align supply to demand.  The tricky part of the supply chain is having the right product at the right place at the right time.  This is where the forecast, aka demand, comes to play, customers place orders and want immediate fulfillment, meaning a quick turnaround, often against the odds with a supply chain with long lead-times.  A forecast provides the plan to prepare for the future.  The MRP (Material Requirements Planning) process applies the forecast against the rules to align future supply to future demand.  Yes, SAP considers the future demand (forecast) and aligns the future supply indicating areas where supply will be short (or over).

A forecast is important, but where does it come from?

It results from a process, a business process involving sales, marketing, finance, logistics, supply, and executive commitment. It typically begins with historical data, combined with future market knowledge bumped up against manufacturing capacities.  Cross-functional collaboration and agreement confirm assumptions producing meaningful, realistic forecasts to strive towards.  But it doesn’t end there, it is also important to measure forecast accuracy and strive for improvements.This Christmas season, while you are out shopping consider the forecast that leads to those favorite gifts sitting on the shelf or perhaps missing from the shelf.

To learn more about how your supply chain can benefit from accurate Forecasting, Demand Management and Sales and Operations Planning contact Reveal.  Reveal also offers a free Self-Assessment as a reliable tool to determine how well a company meets and exceeds its business goals by leveraging the SAP technology it has in place.

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