Forecasting demand keeps getting harder
Forecasting demand just keeps getting harder and harder. Whether you sell consumer or commercial products, the reality is that accurate forecasting is a bit of a misnomer (I heard someone say once during a presentation that to him, forecasting was either wrong or lucky).
As a recent SAP white paper said, “forecasting customer demand is becoming more complex. Customers want more products specific to their needs and applications, and shorter cycle times from order to delivery. Consumer demand is inconsistent and difficult tp predict. This makes it hard to forecast future demand based on previous patterns. Forecasts by nature are inaccurate and forecasting new products is even more difficult. Consequences of conservative forecasts can be missed sales and lost revenue, while optimistic forecast tie up resources and produce excess and obsolete inventory.”
So, what to do? Well, you should certainly be working to improve the accuracy of your forecasting by becoming more demand driven (see AMR Research for much more information on demand driven supply networks).
But, that’s not enough. The facts don’t support a strategy of only focusing on improving forecasting since all of the trends are pointing to increasing challenges in getting it right. You have to have a strategic solution for responding to the reality that your forecast won’t always be right. What are you going to do when a customer calls and wants to change or drop in an order at the last minute - something that wasn’t on the forecast? What is your competition doing to respond to this customer request?
In these situations, it’s going to be the company that can profitably respond the quickest to that customer that will win. And profitably responding quickly means that you need to arm your people with the information and tools they need to make the proper trade-offs and compromises to act quickly and decisively in these situations. This isn’t a planning problem (since no planning in the world will be right 100% of the time), this is a Response Management problem.
With all the trends pointing to the reality that accurate forecasting is getting harder and harder, you need to be looking at what you are doing to deal with today’s reality.
