Bugaboo: something that causes fear or distress out of proportion to its importance.
When it comes to running a company, when things break down executives have traditionally said “we need to improve our forecasting!” Would better forecasting accuracy be a good thing? Absolutely!
Unfortunately, most companies cannot, and will never be able to, consistently rely on highly accurate forecasts. Two months before COVID made headlines in the US, nobody was forecasting the dramatic downturn in demand. Further, there may or may not be a recession. If a recession hits, demand will decrease. When will the recession hit? How much will demand be impacted? All of these things are all but impossible to forecast with any degree of accuracy.
When companies talk about improving their forecasting, they are most often referring to demand forecasting. Demand forecasting is the process of making future estimations of how much of a given product will sell by location and time period. Organizations then convert those demand forecasts to the associated quantities of raw materials to purchase, goods to be manufactured, or finished products to ship.
Here are ten things to keep in mind in terms of the role that forecasting can have on supply chains:
There can be forecasts focused on whether sourcing partners will be able to deliver raw materials to the company in the period needed, or if key carriers can deliver goods to their customers by the due date promised. Demand forecast can be used as an input to forecast how many production or warehouse associates will be needed in a particular week. Many of those forecasts are not produced by demand management solutions but require other applications or tools. For some of these more novel forecasts, machine learning and Big Data can be critical. Leading companies are becoming highly innovative in producing new business forecasts to improve their operations.
In conclusion, the mindset of an organization matters. President Eisenhower, reflecting on his military career, once said “plans are worthless but planning is everything.” That kind of thinking is critical to avoiding the forecast accuracy bugaboo.
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