What is a good forecast?

Patrick Boyle, Sr. Manager, Business Development, SIOP Practice Tuesday, February 14, 2012 Just the other day, I was reading Gartner’s 2011 survey on the future...

Patrick Boyle, Sr. Manager, Business Development, SIOP Practice
Tuesday, February 14, 2012

Just the other day, I was reading Gartner’s 2011 survey on the future of supply chain management software.1  Not surprisingly, survey respondents once again ranked “demand variability and forecast accuracy” as their number one supply chain challenge.  (When this year’s report is released next month, I fully expected it to come in on top again.)  In light of the fact that 49% of survey respondents use demand planning tools, Gartner concluded that underperforming software is the likely culprit.

I see it differently though.  Enabling technology is only one of the key ingredients needed in sales and operations planning.  You also need the right people (with the right training) to synchronize information from the top of the organization to the bottom and work collaboratively across functions.

I think the real mystery of demand planning is knowing whether or not you’re good at forecasting.  My guess is that many of those 49% do a pretty good job, but they just don’t know it!  That’s because traditional benchmarks are unreliable.  They don’t consider your company’s unique business characteristics (like product mix, demand profiles, forecast time horizons, etc.), so you’re left with an “apples-to-oranges” comparison.  For instance, if your business has large portion of items with short life cycles that you phase-in and phase-out regularly, your forecasting environment – and consequently, your forecast accuracy – will be different than a company with a very stable set of products.

At Chainalytics, we’ve been tackling the apples-to-oranges problem for years.  Our innovative solution – a model-based benchmarking approach – was first applied to the truckload freight market eight years ago to understand the underlying drivers of transportation rates.  Since then, we’ve also created “apples-to-apples” benchmarks of shippers in the less-than-truckload, intermodal, and ocean container markets.

Last year, we partnered with several leading consumer goods manufacturers to migrate our unique approach to demand planning.   The result was the Sales & Operations Variability Consortium, which we believe successfully addresses the apples-to-oranges challenge and allows companies to focus on the demand planning areas that really need improvement.

 

1 “User Survey Analysis: Understanding Supply Chain Management Software Buyers, North America, 2011,” Chad Eschinger, C. Dwight Klappich, Robert P. Anderson, March 24, 2011.

 

 

 

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