• "The problem here is a. failure to communicate": As
pointed out earliest, often the market factors that drive demand changes are not noticed by sales and marketing professionals until after the demand, in fact, changes. However, in many cases, these market changes or forces are known to others—the demand chain partners. It's difficult for sales and marketing personnel to predict what demand change partners (customers and consumers) will do, based on their limited knowledge of changes in market forces.
Having an organized, consistent, and timely communication network, wherein changes noticed anywhere in the demand chain are immediately communicated to those who are affected by it, is a far more powerful tool than the most sophisticated statistical software package. Though these kind of supply chain linkages (customer linking, customer connectivity) are beginning to emerge in many industries, they are very difficult to build, since they require a common vision, agreement in principle, and integration of detailed communication tools between multiple companies working together.
SO WHAT'S THE ANSWER?
• Attack the bias first Using whatever simple analyti
cal or reporting tools are easily available, begin to ana
lyze forecast errors for bias by looking at the data over a
longer period of time. In some cases, and in some mar
kets, this may involve reviewing annual demand patterns
and comparing them to the last year or two. In other
marketplaces this may only involve several months, if
there aren't historical patterns that are replicated or if
the market is changing drastically. Through trial-and-
error, identify what horizon is appropriate for each prod
uct group and begin analyzing and identifying items
where the bias is obvious. Then correct the bias; that is,
change the forecast to the best estimate of average de
mand, such that the month-to-month errors will be rela
tively evenly spread above and below the new forecast.
Often this means getting management's concurrence to
change the numbers to fall below or above current busi
ness targets. This requires a management culture that
accepts the fact that the current forecasts are not neces
sarily the business objective. It is critical to accept these
differences, discuss them, highlight them, and then deal
with them. How:
- Use Sales and Operations Planning (S&OP). A struc
tured, consistent S&OP review process provides the
forum where actual sales vs. forecasts are reviewed,
at least at an aggregate level. Where the numbers don't
match, there needs to be a push for reasonable ad
justments to plan. Top management must insist
upon adjustments, so that the numbers are realistic.
Constant monitoring of forecast accuracy based on
agreed-upon measurements (see below), should oc
cur within this process.
- This process should also provide the forum for identifying gaps between current estimated sales vs. the budgeted revenue plans. This should trigger activities in the sales and marketing organizations (and with demand chain partners) to alter demand patterns, offset market forces, or change activities to get future demand patterns back on track to meet business plans. Where this is not possible or practical, early identification of when business objectives will not be met can be used to adjust budgets, financial plans, and other targets for the rest of the organization, to deal with the effect of these situations.
- Plan /br variation: Even with bias totally eliminated,
normal week-to-week or month-to-month demand
variation needs to be accommodated. There are a wide
variety of techniques to help accommodate this, includ
- Moving to finish-to-order or make-to-order produc
tion approaches, so as to not commit material and
capacity resources until the true customer require
ments are known.
- Shortening supply chain lead times to minimize the
early commitment of inventories, and facilitate the
adjustment of schedules to actual customer demands
- Increase manufacturing flexibility to more easily en
able short-term schedule changes to respond to shifts
in demand from the customers.
- Planning for safety capacity to allow variation in
demands to be accommodated by changes to the
schedule, whether in total volume or in mix, or be
tween one manufacturing area and another.
- Material overplanning, which reserves capacity and
plans for materials to be available to respond to near-
term shifts in demand, both within the manufactur
ing facility and for all critical supply chain partners.
To Be Continued