Business Basics
Home Page

Who is Bill Gaw?
And why should we
listen to him?


lean manufacturing principles and techniques training

Need a training tool that transforms MRP supporter into LEAN-MRP advocates?
LEAN-MRP Simulation Game-Plus

The Lean Manufacturing Training
Package that's a real winner
Lean Manufacturing Transformation

Demand Forecasting
Part  2 of 9

Get Bill Gaw's Lean Manufacturing Book
$15.00 Click Here

 Book: "Back to Basics"


privacy policy



Mfg. Training Options:

Lean Manufacturing Transformation

LEAN-MRP Simulation Exercises

Lean Manufacturing Certification Program

Lean Manufacturing
on-site Seminars

Inventory Management
Training Program

Lean Manufacturing, PowerPoint, 8-CD, Training Library

Lean Management PowerPoint Training Modules

Lean Management PowerPoint Training

Lean Manufacturing Assessment and Improvement Plan

Kaizen Training
(On-site Program)

ISO 9001-2008 Compliance and/or Registration

Strategic Planning Training Program

Manufacturing Perform-ance Management Training Program

the-Box Workshop

Lean Manufacturing Articles


A little known fact or one that is generally forgotten is that your first concern is how accurately any system will forecast demand at YOUR Company. It sounds obvi­ous, but it's not. It's like the old joke that a fishing lure doesn't actually have to catch fish—just fishermen! Soft­ware shoppers can be distracted by very appealing fea­tures. Graphics are great, but almost all systems have them. Even if they don't, it's usually easy to download into some nifty graphics package you already have. Ac­curacy of safety stock to cover variances is a nice fea­ture. But the more accurate your forecast, the less safety stock you'll need, so that's a moot point, isn't it? Fea­tures that balance overstocks and shortages at multiple locations are great, but wouldn't you rather just have the right stuff in the right spot to begin with?

I'm not saying that any of those features are bad. In fact, they are great features. Just don't confuse them with an accurate FORECAST. Many of these after-the-fact executions can be quite useful because you WILL have forecast error. But, keep in mind that forecast accuracy is first and foremost. A few thousand dollars more now for the better forecast system can prevent tens of thou­sands to millions of dollars of waste over the years, so don't be penny-wise and pound foolish.

But there are features that you need to consider besides accuracy. They include screen layout, exception reports and ease of error correction, the ability to run on your software platform or architecture, processing time, and the ability to easily adjust forecasts for promotions or market condi­tions. Have the system users compile a list of desired fea­tures after having looked at several systems.

Once you've got it narrowed down to a few systems that appear to fit the bill, I STONGLY urge you to be­come a software salesman's worst nightmare. Ask for a detailed demonstration that will show you EXACTLY how those desired features work, how you'd work the exceptions, etc. Now is the time to find out if the sys­tem will work for you, not after you buy it. If you're not happy now, it'll only get worse later, so keep looking until you find the best fit.


Now for the nasty part. Have the software company use your data for the demonstration. Tell them that you want them to run it through the "plain vanilla" version with standard settings. Do not give them the most re­cent year of data. For instance, if you have four years' worth of demand, give them the three oldest and tell them that it is the three most recent.


Now compare the forecast generated from the fur­nished old historical data to the recent year's actual de­mand. Pick at least one product group that shows a lot of diversity between high-volume, low-volume, seasonal, and sporadic items. Calculate the ABSOLUTE (unsigned; forecast of 10 vs. demand of 7 is 3, and a forecast of 10 vs. demand of 12 is 2, not +2) difference for each item, month by month, for 6 months to 1 year, and add them up. The system with the lowest total variance is the most accu­rate. I recommend that you test a horizon that is at least as long as your total aggregate lead time PLUS that of your suppliers if you intend to furnish requirements to them or optimize blanket purchases.


I know it's a lot of work. But it's a lot less than all the rescheduling and backorder expediting you'll do over the years with a less accurate system.


Don't scrimp on setting up the system using the soft­ware company's own consultants and trainers. They know the system much better than you do, how to set up for the most effective long-term results, and have probably even done more difficult installations. You may find later that there might be a few adjustments needed to refine the system even more, but those things are minor compared to the cost of buying software, install­ing it, and having poor results. The best way is to use the experts—you'll pay for it now, or you'll pay for it later, when all credibility in the system is gone. Do it right the first time.

To Be Continued

For balance of this article, click on the below link:

Lean Manufacturing Articles and click on Series 15

   Increase Your Knowledge... Stay Connected
Join our 15,000 plus MBBP
Bulletin Subscribers

To stay current on Lean Manufacturing principles and techniques, subscribe to our Manufacturing Basics and Best Practices Bulletin (MBBP) and we'll send you our 10-PowerPoint-Plus, Lean Manufacturing, Mini-Modules. (All at no cost of course.)

  Your personal information will never be disclosed to any third party.

First Name:
Your E-Mail:

Here's what one of our 13,000 plus subscribers wrote about the MBBP Newsletter:

"Great manufacturing articles. Thanks for the insights. I often share portions of your articles with my staff and they too enjoy them and fine aspects where they can integrate points into their individual areas of responsibilities. Thanks again."

               Kerry B. Stephenson. President. KALCO Lighting, LLC

"Back to Basics" Training for anyone ... anywhere ... anytime

Business Basics, LLC
6003 Dassia Way, Oceanside, CA 92056
West Coast: 760-945-5596 

© 2001-2013 Business Basics, LLC