Quick Response Logistics

Some of the most common approaches used to develop a sales forecast do nothing to support quick response. Here are three of the more common mistaken approaches used in industry today.

1. Aggregate forecasts. A common approach is to develop an aggregate forecast for the business and then to use historical or projected percentages to calculate detail forecasts. Unfortunately,

customers buy what they want and not necessarily what is budgeted. A budget forecast is good for budgeting but it is not good for logistics forecasting. Logistics forecasts must identify by stock keeping unit what is expected to be sold.

2. Computer aided forecaster. A second very common approach is to use a computer to generate a forecast and then to have a person review and analyze the forecast. This is a way of using procedure to change the forecast. This approach is very subject. It assumes forecasting is an art and not a science. It also tends to encourage second guessing throughout the organization. If you have to change the forecast numbers from the forecasting system, you need a new forecasting system that people believe in.

3. Forecasts from field sales. The third common approach is to ask the sales people or key customers what they think future sales will be for each item. Sales people and customers have many reasons for purposely raising the forecast or lowering the forecast. For example sales people are measured on sales and may give an optimistic forecast simply to encourage higher inventories to protect against out of stocks. Sales people are measured against targets and may purposely minimize the forecast in order to look good when actual sales exceed forecast. If sales people do not purposely forecast too high or too low, the enormous task of forecasting every item on a frequent basis will quickly take second priority to the main priority of selling.

Often people say, "If only someone would hold their feet to the fire" and make the sales people accountable for the forecast. It is a fallacy that the best person to forecast sales is the sales person in the field. When business is good sales people are not worried about forecasting sales and it is something "we need to get around to". When business is poor, sales people are not worried about forecasting sales because their main effort has to be to get more sales and the last thing they want to tell their boss is that they are working on a forecast.

In fact, most common sales forecasting approaches are doomed for failure because companies have defined the need for accuracy incorrectly. Specifically, how accurate will be defined later in this presentation. A more accurate forecast is a good thing for companies but something more is needed. A closer look at many business operations reveals the need for better distribution inventory planning.