Forecasting gives drive and scale. Its impact on working capital is nothing short of critical and when it”s done right, the results cannot be overstated – reduced working capital, improved product availability and fewer emergencies to name but three. But in my experience, 80 per cent of companies are getting their forecasts 80 per cent wrong, 80 per cent of the time.
Here are a few questions I often find myself pondering. How come so many companies still spend so little time building a workable demand plan? How come many still see demand planning as a back office number-crunching process? How come ?as few as 15 per cent of companies still rarely conduct a review of forecast accuracy? Why is it that so many have still not cottoned on to the fact that a good forecast requires both the application of science (technology) and art (judgment) and that the most successful companies combine best-of-breed forecasting technologies with disciplined, collaborative interventions to ensure that business intelligence is properly factored into the mix?
I did some research recently and found that about half of all companies are still developing forecasts using trusty old spreadsheets. While spreadsheets are flexible, they are usually informal and thus dependent on user discipline for consistent application.
On the other hand, the companies that had embraced technology and purchased advanced software packages expected to sit back and let the computer forecast away. This strikes me as not much better than guesswork. No matter how good a computer is at doing a trend analysis of sales history, there”s no earthly way it can identify anomalies.
No, success hinges on collaboration – collaboration between man and machine and collaboration between man and his colleagues. Human refinement and the exercise of judgment within a clearly defined demand planning process are indispensable.
Despite evidence that while top performing companies are the ones most likely to be using optimisation software, many companies are continuing to resist the trend, putting me in mind of old, damp King Canute.
Kevin Boake is managing director of Barloworld Optimus