There’s no such thing as 100% when it comes to forecast accuracy. Let me say it again. One hundred percent accuracy does not exist. I don’t care how good your demand sensing is or how sure your sales team is of their market projections. It’s just not possible. Anyone who says differently is either selling something, or a deity. So why are you spending so much time trying to make the impossible real? Time and again I’ve heard how important forecast accuracy is when it comes to improving supply chain operations. It always seems to be a priority no matter where on the maturity scale a company falls. But this practice of chasing perfection is killing your supply chain. Not slowly, over time, but rapidly, like a tsunami sweeping your profits out to sea as that one giant wave recedes. Because that’s all it takes to destroy you. One catastrophic unexpected event. Why forecast accuracy fails It could be a natural disaster, a drastic shift in the political landscape or even the collapse of your only tier one supplier. The unknown is your biggest supply chain weakness, and the one you’ll never see coming, no matter how great you are at forecasting. Pretending otherwise, that forecast accuracy can save you when the unexpected strikes, is foolhardy at best, a death sentence at worst. Forecasting fails because it can’t account for unanticipated supply chain risks. But there is a glimmer of hope in all of this doom and gloom. While you’re never going to perfect your forecast accuracy, you can better prepare for unanticipated events by making sure your supply chain can react and respond. That means enabling:
- End-to-end supply chain visibility—see the impact before you feel it
- Robust scenario simulations—ask ‘what-if?’ and get an immediate answer
- Cross-functional collaboration—make better decisions faster
Overcoming the unexpected
Developing these capabilities requires concurrent planning, which is the ability to simultaneously and continuously plan, monitor and respond to supply chain changes in a single environment. Concurrent planning bridges functional silos and connects all nodes in the supply chain, enabling cross-functional coordination and rapid, more effective decision-making. You’ll gain immediate, actionable visibility across the extended supply chain. By seamlessly connecting your entire network of data, processes and people, you can conquer the unexpected and make your supply chain more nimble across demand, inventory, supply, manufacturing constraints (across tiers), supplier restrictions and transportation modes. With concurrent planning, you radically shrink supply chain planning cycles and response times. This improves the accuracy of analysis and the profitability of actions. Ultimately, leveraging a central system for supply chain visibility, planning and analysis will enable you to know sooner and act faster when catastrophe strikes. Improving the anticipated While forecast accuracy may not save you from the unexpected, it still has a place in your supply chain. It can help you better understand demand, align it with supply and capacity constraints, and yes, help with that bottom line. The trick is understanding its limitations, i.e. that it can’t predict everything. Once you get past that hurdle (and it’s a big one for many), improving your forecast accuracy goes back to some of the basics of concurrent planning.
- Connect your data in a single system. This allows better visibility into the current state of your supply chain and means you’re building your forecast from the most up-to-date and complete numbers as possible.
- Connect your processes, both within and outside of traditional supply chain roles. This allows you to account for outside inputs like marketing (are they running any promotions?), sales (did they make a big commitment in the field?) and finance (do budget cuts mean no new machines or manpower for added capacity?)
- Connect your people, regardless of where they’re located geographically. This allows for faster, more effective collaborative decision-making and makes it easier to have conversations around tradeoffs and impacts.
Striking the right balance
Chasing perfection is a lot like trying to reach the end of the rainbow. While you may seem to be getting closer to it at times, you’re never actually going to get there. To prevent the destruction of your supply chain by one unexpected event, find the balance between improving forecast accuracy and enabling a more responsive supply chain. It will bring you a lot closer to reaching that pot of gold. Does your company place a higher value on forecast accuracy or responsiveness? Let us know in the comments area below.
Nice logical assumptions and conclusions, like them.
Could you comment what type of company and in what situations can place equal value on forecast accuracy and responsiveness.
I guess many would try to systematically search forecast data, would rely on multiple sources with a clear understanding they are diminishing but not eliminating risks, whereby responsiveness is based more on intuition based on past experience. Wonder what techniques you would consider proper to achieve a 'gold section' between both, if one can call in such a way the ideal balance. I'm based in Sofia, with long experience in B2B operations with a focus on international trade, and would appreciate your comments on above. Just starting a new project and would gladly appreciate further communication.
Glad you enjoyed the blog! In my opinion, I'd say companies with products that can be semi-customized would likely benefit from placing equal emphasis on forecast accuracy and supply chain responsiveness. A simplified example would be an electronics company who offers a specific device in different colors. The forecast can give them an estimate of how many of each color they're likely to sell, based on historical trends, market research, etc. However, outside influences, like a competitor promotion or a supplier disruption or even a mention on social media by a celebrity, could cause those forecast projections to miss the mark and cause a demand spike for one color over another. Then it becomes a matter of how fast the company's supply chain can respond and adapt to the shift in demand in producing more of that one color. It's important to note that all supply chains, even those in a make-to-stock environment, can benefit from higher levels of supply chain responsiveness. It helps with handling those unanticipated risks -- not just associated with demand. Hopefully that helps answer your question.
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