Have You Experienced Forecasting Déjà Vu?
My client is describing the challenges experienced when Sales Forecasting inaccuracy is being blamed for inventory issues and availability date Available to Promise (ATP). After so many years in the field, why do I still feel this is a commonly experienced issue within the industry? Seasoned professionals will agree that in order to get the desired results, we need to ensure that people, process&technology are all aligned.A key reason for working with a Sales Forecast is to fulfill customer orders in an agreed period of time, through an advanced procurement of inventory from suppliers (In-house manufacturing sites and vendors). Sales Forecasting also helps with identifying constraints which may prevent manufactured inventory from being available within this period of time.
One thing we have known for over 20 years is it's tough to get a correct product mix and timing forecast.
For instance, if you picked any related group of products along with all their historical information you think is needed to forecast the next 12 months into the future, how accurate you think your forecast will be? Did I mention calendars (4-4-5 vs Gregorian) versus weekends and holidays? It is not uncommon to hear that accuracy improves when SKU level is removed yet the timing is still an issue due to the various variables that influence when a customer desires a particular product. At one client during a slump in the US economy, I ended up doing deep diving into this topic given that some of the results were way off. A key point was that sales in the previous months were significantly lower than in previous years. I also learn that a key reason for having various forecasting models is that each model has flaws within them--resulting in the birth of new forecasting models. While these understandings led to the generation of better-forecasted numbers, it also highlighted the need to track actual sales against forecasted sales in order to have a course of action to address deviation.
From a technology perspective, processing speed, software design, and capabilities have significantly improved over the years. Data/statistics that can be captured and made available to yield better visibility and trends have also vastly improved. While the people element has also seen significant enhancement due to supply chain college degrees and professional organizations like APICS; why do I still feel like I am experiencing déjà vu at different clients on this topic? Of process, people and technology, the process appears to be the biggest challenge to be addressed when Sales is not aligning with Forecasted Sales. What reactive action may be required to focus on inventory needed sooner than predicted and delaying others with less urgent demand? Do we take what is typically a Monthly process and turn it into a weekly or even daily process and let the system highlight the issue? Imagine when I started my career: MRP took a minimum of eight hours to run and if something went wrong with the run, we had to wait another twenty-four hours for new results.
Here’s some food for thought: If the perfect world allowed us to change the product plan at will, we know we run a higher risk of disruption due to component shortages, storage space issues, higher expediting cost, etc. Why do these concerns still hold true even though we can see the reactions within a single day?