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. 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)
A forecast is a prediction about the value of a time series variable at some time in the future. For instance, one might want to estimate next month’s sales or demand for a product item. A time series is a sequence of numbers recorded at equally spaced time intervals; for example, unit sales recorded every month. The objectives you pursue when you forecast depend on the nature of your job and your business. Every forecast is uncertain; in fact, there is a range of possible values for any variable you forecast. Values near the middle of this range have a higher likelihood of actually occurring, while values at the extremes of the range are less likely to occur.
In almost every business and industry, decision-makers need reliable forecasts of critical variables, such as sales, revenues, product demand, inventory levels, market share, expenses, and industry trends.Many kinds of people make these forecasts. Some are sophisticated technical analysts such as business economists and statisticians. Many others regard forecasting as an important part of their overall work: general managers, production planners, inventory control specialists, financial analysts, strategic planners, market researchers, and product and sales managers. Still, others seldom think of themselves as forecasters but often have to make forecasts on an intuitive, judgmental basis.
In a highly configurable manufacturing environment, forecasting finished goods can become a complex and daunting task. The number of possible finished products will skyrocket when many components are interchangeable. A traditional MRP would force us to forecast every single finished product which can be unrealistic or even impossible. Several leading ERP solutions introduce the concept of the “Planning BOM”, which allows the use of forecasts at a higher level in the manufacturing process. In this article, we will discuss this functionality in ERP, and how you can take advantage of it with Smart Inventory Planning and Optimization (Smart IP&O) to get ahead of your demand in the face of this complexity.