How to Improve Demand Forecast Accuracy

By Jeff VanDueusen, Senior Solution Architect

CHALLENGE

At one point or another, nearly all organizations struggle with forecast accuracy and the role it plays in the organization.  There are many different ways to measure and interpret forecast accuracy across an organization, and different segments of the organization can view and perceive a forecast accuracy measure in different ways.  This is a key challenge to the efficiency of a Sales and Operations Planning (S&OP) process since a portion of every forecast review meeting is spent either explaining or defending a Forecast Accuracy measure to stakeholders outside of the Supply Chain.

The question is: “What strategic activities can be put in place to instill confidence in the Forecast Accuracy measures across the broader organization?”

As organizations implement Demand Planning and S&OP processes and the associated solutions, the initial focus is to roll out the process and/or solution and capture forecast accuracy measures based on adherence to the execution level process by the front line users.  While this, in most cases, drives a level of improvement in Forecast Accuracy (post go-live), over time it can be viewed in other segments of the organization as a “Black Box” that the executing department controls.

APPROACH

To mitigate this perception across the broader organization, the department that is the Key Stakeholder in the measures should implement and set strategic activities to stabilize and improve overall forecast accuracy and accountability.  As these activities are being rolled out, they should be communicated and adopted by all segments of the organization to ensure alignment on how and why Forecast Accuracy measures are captured and used.

This post introduces four strategic activities used to instill confidence in the calculation and tracking of Forecast Accuracy measures:

  1. Review and manage accuracy inputs – Implementing a standardized review and update process for baseline forecast inputs allows the Planning Organization to stay current with changing market conditions and align with the business drivers for external inputs (Sales, Marketing, Operations, Finance, etc.).
  2. Categorize and manage accuracy objectives – Many organizations assign a product to a category or group either at product introduction or solution go-live, depending on the age of the solution.  As products move through the product lifecycle, the categorization should be reviewed and updated based on a standardized timeframe.
  3. Understand why you are measuring accuracy – Organizations that have long-established Forecasting processes and procedures will normally measure forecast accuracy based on the timing determined at implementation.  A new movement is aligning the time lags where accuracy is measured to key activities across the broader organization.
  4. Ensure planning structure continues to meet the needs of the business – A common observation is that once an organization has gone through a “greenfield” implementation (new software and process design), they tend to only perform technical upgrades with or without rolling out new functionality.  Most consulting firms will design a solution and associated processes to meet the clients existing business structure, so that after seven or more years the solution’s design can become stale and not meet the needs of a changing organization.  Solution designs should be assessed prior to a planned upgrade to ensure alignment with the overall strategic objectives of the business.
RESULTS

Many organizations operate from a perspective on forecast accuracy that was conceived at least a decade earlier.  This provides challenges with evolving processes like S&OP and can inhibit the efficiency of the process through the perception by outside stakeholders that it’s a black box calculation and is potentially not evolving with the needs of the organization.  The implementation of the four strategic activities outlined above will help to instill confidence in the forecast accuracy measures across the broader organization.

At Vaco Supply Chain Solutions, our expertise is creating supply chain value for retailers and consumer goods manufacturers. We understand the connection between retailers and suppliers in business processes and technologies and we know how to make those connections effective. We have deep experience across the entire supply and demand chain, including merchandise planning, demand forecasting, replenishment, assortment and space planning, and supply chain optimization.  Call 804-282-2033 for more information. 

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