Improving forecast accuracy and demand sensing - it’s not an either/or decision
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There’s a lot of discussion today about improving forecast accuracy. It makes sense since improvements here will yield direct improvements in business performance. There tends to be less discussion about improving demand sensing (although AMR Research promotes this quite regularly) and ensuring appropriate supply-side flexibility and responsiveness to deal with true demand that is quite often not what was forecasted.
Unless your business has very predictable demand (this increasingly seems to be the minority business), then your best efforts at forecasting will never produce a perfect forecast. The question then becomes what are you going to do about the portion of your business that you can’t accurately forecast? This is where demand sensing and supply-side flexibility and responsiveness are critical. As companies seek to become more demand-driven, they need to acknowledge the fact that you just can’t plan the customer. You need to invest in tools and methods to ensure that you can respond as realities unfold.
The biggest concern here is that I continue to hear of too many cases where companies view these as either/or decisions - usually starting with improving forecast accuracy since that seems to be the hot topic today. While this is a worthy investment, in many businesses its actually more important to excel when the forecast isn’t accurate to ensure that you can beat the competition by providing better customer service and a more profitable demand response in response to the unexpected.
