Best Practices In Forecasting
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The document discusses best practices in demand forecasting, emphasizing the importance of understanding supply and demand constraints to avoid oversupply and undersupply issues that can negatively impact a company's viability and market position. It recommends using historical data, triangulation of various forecasting approaches, and tools to enhance forecast accuracy while acknowledging the inherent inexactness of forecasting. Additionally, it highlights the role of crowdsourcing and the need for continuous feedback to refine forecasting models.
Best Practices In Forecasting
- 1. Best Practices in Demand ForecastingCHARLES DIMOVCDIMOV@HOTMAIL.COMOR FIND ME ON lINKEDiN
- 2. Operate Efficiently & EffectivelyCompanies must understand Supply & Demand constraintsAccurate ForecastsPrepare for resource needsPrepare for structural evolutionInvest right amount of Capital at right timeWin in Market!Why?
- 3. OverSupply:Depreciating resourcesObsolescenceOverstaffingExcess InventoryAffects Price Drives Promo addictionErodes Product ValueErodes Brand ValueWrong ForecastCOGS ↑Cash Flow TiedROA ↓GM ↓Contribution Margin ↓Acid Test Score ↓Viability of Company ↓
- 4. UnderSupply:Product ShortagesLost SalesPrice ↑Brand Promise ↓Bad PRCustomer Confidence ↓Months to recover in Supply ChainWrong ForecastMarket Share ↓Lost Revenue Opp.Earnings ↓P/E (not optimal)Lost Market PositionCompetitor Wins
- 5. To Avoid This Forecast…Image by: Iam Wahid (16Jul2009)
- 7. Whenever possible – use HISTORICAL DATAFor NPI – use closest HISTORICAL DATA“Study History or be doomed to repeat it” Brother LomanLavigneFirst PrincipleTime variability, and scale
- 8. Analysis: SeasonalityTrend1 Economic CycleCycle1 YearSeasonality
- 9. Excel / Systat / SPSS / SAS / MiniTabDescriptive Statistics to show boundariesAnalysis: StatisticsBANOTE: Watch the STD Deviations
- 10. Many S/W Tools Expert System chosen modelsLowest MAD (Mean Absolute Deviation)Export to ExcelCan be a Dead Simple ProcessAnalysis: Forecast Tools
- 11. Forecast Pro$1,295 - $8,995 USwww.forecastpro.comVanguardwww.vanguardsw.comDemandWorksSmoothie$500 - $6,000 USwww.demandworks.comSAS www.sas.comAnalysis: Forecast Tools
- 12. CrowdSourcing: “under the right circumstances, groups are remarkably intelligent, and are often smarter than the smartest people in them.” p.xi Introduction, Wisdom of Crowds, James Surowiecki.Analysis: CrowdSourcing???
- 13. No one model will be accurate every timeForecasting is inexact Dark-Art / ScienceProvides General Guidance on direction and magnitudeTriangulate-Seasonality Est.-Forecast Tool Est.X-Channel Est.-Sales Funnel-Supply Constraint-CrowdSource
- 14. Product / Marketing Mgr Smarts / HeuristicsEyeballMajor DM + Ad Campaign+ Promotional OfferVersion 2 Pre-Anouncewill stall sales – B4 general availability
- 15. Product / Marketing MgrsPricing Model changesPromotional OffersMarketing CampaignsDiscounting changesBrand effectsBankruptcies / New entrantsCompetitive AnalysisMarket ConditionsMajor EventsReduced DefectsEyeballNew Channel PartnersDistribution ModelDisruptive Technology ChgMarket Preference shiftManufacturing capacityMarket Share expectationsGlobal EventsEconomic Cycle effectsInventory ReturnsOther Factors
- 16. Every Quarter – check Forecasts vs ActualsFocus = biggest deviationTweak ModelDo it again!Feedback Loop
- 18. Books: Not found a practical book Websites: www.ibf.org (not s/w specific) (discussion forum)Article: TPMA Focus 3Q11More on Forecasting