The Smart Forecaster
Pursuing best practices in demand planning, forecasting and inventory optimization
Companies launch initiatives to upgrade or improve their sales & operations planning and demand planning processes all the time. Many of these initiatives fail to deliver the results they should. Has your forecasting function fallen short of expectations? Do you struggle with “best practices” that seem incapable of producing accurate results?
For ten years, the editorial team at Foresight: The International Journal of Applied Forecasting has been telling readers about the struggles and successes of forecasting professionals and doing all we can to educate them about methods and practices that really work. We do that with articles contributed by forecasting professionals as well as respected academics and authors of highly-regarded books.
As Founding Editor of Foresight, I’d like to invite you to join us for the upcoming Foresight Practitioner Conference entitled “Worst Practices in Forecasting: Today’s Mistakes to Tomorrow’s Breakthroughs.”
This 1.5-day event will take place in Raleigh, North Carolina, October 5-6, 2016. There we will take a hard look at common practices that may be inhibiting efforts to build better forecasts. Our invited speakers will share how they and others have uncovered and eliminated bad habits and worst practices in their organizations for dramatic improvements in forecasting performance.
Some of the topics to be addressed include:
• Use and Abuse of Judgmental Overrides
• Avoiding Dangers in Sales Force Input to Forecasts
• Improper Practices in Inventory Optimization
• Pitfalls in Forecast Accuracy Measurement
• Worst Practices in S&OP and Demand Planning
• Worst Practices in Forecasting Software Implementation
Foresight is published by the non-profit International Institute of Forecasters (IIF), an unbiased, non-commercial organization, dedicated to the generation, distribution and use of knowledge on forecasting in a wide range of fields. (Smart Software’s own Tom Willemain serves on Foresight’s Advisory Board.) Foresight is just one of the resources made available by the IIF. Additional publications, a host of online resources, an annual symposium and periodic workshops and conferences are available to all IIF members. The Smart Forecaster previously interviewed IIF past-president Dr. Mohsen Hamoudia. Visit the IIF site for information about joining.
(Len Tashman is the editor of Foresight: The International Journal of Applied Forecasting. The unusual practice-related conference he describes, upcoming in October 2016, will appeal to many of readers of The Smart Forecaster. For instance, those who have received Smart Software’s training have been alerted to the possibility that overriding statistical forecasts can backfire if done cavalierly. Two sessions at the conference focus on the use of judgement in the forecasting process. — Tom Willemain)
Generally, the supply chain field has lagged behind finance in terms of the use of statistical models. My university colleagues and I are chipping away at that, but we have a long way to go. Some supply chains are quite technically sophisticated, but many, perhaps more, are essentially managed as much by gut instinct as by the numbers. Is this avoidance of analytics safer than relying on models?
You can’t properly manage your inventory levels, let alone optimize them, if you don’t have a handle on exactly how demand forecasts and stocking parameters (such as Min/Max, safety stocks, and reorder points, and order quantities) are determined. Many organizations cannot specify how policy inputs are calculated or identify situations calling for management overrides to the policy. If you have these problems, you may be wasting hundreds of thousands to millions of dollars each year in unnecessary shortage costs, holding costs, and ordering costs.
There are three possible types of forecasts that can be used in demand and inventory planning processes. Point forecasting, interval forecasting, and probabilistic forecasting. Each type of forecast offers progressively more information to inventory managers that will enhance the planning process. In this video blog, Dr. Thomas Willemain explains the differences and highlights the advantages that probabilistic forecasting offers. In summary, knowing more is always better than knowing less and the probability forecast provides additional information that is crucial for inventory planning.