Friday, December 19, 2008

Downside of Visibility

I had the privilege of working at a couple of accounts outside the US this year. And while each was in a different industry, I noticed that same thing in their forecasts -- a declining downward trend.

In both cases, the statistical forecast was trending downwards, yet when I asked if team had spoken to the VP's about it, they said "no because sales team is not in agreement". Sales teams by nature tend to have a "positive bias" which is a good thing. However, running a company that way will lead you straight off the cliff. Never a good idea not to use all your data in executive decision making. Hopefully these companies will react soon enough.

Jason Busch over at Spend Matters, looks at the impact of having visibility in your supply chain.

Now that we are using all the data -- the next question is how to react to ensure survival AND prosperity.....

Monday, December 15, 2008

Forecasting --Continuous Improvement

Forecasting is key for companies who want to improve customer service AND margins, yet many companies don't spend the necessary time to do the analysis as it can seem overwhelming.

In even a 100 Million business there can be thousands of "intersections" (customer - product -location) that need improvement, where do you begin.

A simple way to start is to measure "MAD" --- "mean absolute deviation" (Forecast - Sales*)/Sales for every intersection. Most enterprise demand management tools allow you to do this -- in i2's Demand Manager users can set this up quite easily and run it every month.

You should get something that looks like after 3 months
Product Location M1 M2 M3
"Bat wings" "Portland" 50000 45000 30000

Assuming you sell Batwings in Portland and missed the forecast by 50000 in M1 and 30000 in M3.

Once you have this record, simply focus your efforts (or your teams) on the largest 3-4 intersections each month and do everything possible to improve your forecast accuracy

1. Clean up your data -
you have tagged all your promotions in the past 3 years and identified the lift?
if using shipments, make adjustments for stockouts in the history

2. Tune your algorithms and make sure the parameters "cover" your data set . (A topic for another post)

3. If part of a S&OP (Sales and Operations planning process), make sure to capture and listen to the sales folks on the promotions in those intersections for the next few months as well as any marketing promotions.

In fairly short order - 2 to 4 months you should see some dramatic improvements in these top intersections and you can start the process on the next 3 or 4 "top" intersections

This small amount of effort will dramatically improve your business results, make supply chain and sales life easier and even make your CFO happy if you explain to her the impact on the Cash Conversion Cycle.

*I'm assuming you have access to actual sales, you can also substitute shipments.