I am pleased to announce the completion of my new book, “Fundamentals of Demand Planning & Forecasting.” To me, this is the most comprehensive book written in the area of demand planning and forecasting, covering practically every topic which a demand planner needs to know.

This book discusses not only the different models of forecasting in simple and layman terms, but also how to use forecasts effectively in business planning. The material covers forecasting processes from Silo to Consensus Forecasting to Sales & Operation Planning(S&OP) to Collaborative Planning, Forecasting and Replenishment (CPFR) to Integrated Business Planning (IBP). The book then moves on to describe how each one of these processes improves over the other. It gives many real life cases and examples to make its  point.  No matter how accurate forecasts are they have no value unless they are used. For that, the book explains how to report, present and sell forecasts to management.

Also, since nothing improves unless it is measured, the book discusses in detail key performance indicators, which are used or should be used in business.  This is also supported by examples of what we can do to improve forecasts. Above all, it brings out a number of worst practices adopting the premise that once companies recognize what they are doing wrong, they will do something about it.  In this book you will also find the criteria for selecting a forecasting & planning package or system and more.

The Book shares benchmarking research data collected by the Institute of Business Forecasting & Planning (IBF). Readers will find this information useful in terms of deciding where the forecasting function resides at companies, forecast error across multiple industries, product levels, and horizons, and so much more.

“Fundamentals of Demand Planning & Forecasting” is especially geared towards those who have just entered the field of demand planning, forecasting, and S&OP or want to know more about it.  It is written in a simple language so that a person with little or no knowledge about the field and/or statistics can follow it. Although, the book is appropriate for beginners, persons already in the field will find significant value as well.

Finally, the new book will support IBF Certification, as it will be included in the study materials that a candidate will receive when they register to take the IBF’s Certified Professional Forecaster (CPF) and Advanced Certified Professional Forecaster (ACPF) exams.  IBF’s certifications are known across the world to increase the probability of S&OP success and increase the value of any team whose members hold them.

You can view the Table of Contents for the book here.

This book is the result of decades of experience in demand planning and forecasting as a researcher, practitioner, and academician. I’ve dedicated most of my professional career to business forecasting & planning and am pleased to offer you this book. I hope you enjoy this masterpiece.  Feel free to share your comments and questions, as I would enjoy hearing from you.

Dr. Chaman L. Jain
Chief Editor, IBF’s Journal of Business Forecasting
Professor, St. Johns University (New York USA)

Book Testimonials:

“This is much more than another dry book about forecasting. Yes, the math is there, but it is much more than that, with over 40 years of experience and real life examples where the function is at the moment, how we got here and most importantly where we are going. Whether you are just getting into the vocation or an executive looking to take your Demand Planning to the next level, make sure to pick up this book to ensure your organization is heading in the right direction.”
—Michael Wachtel, Vice President of Demand Planning, L’OREAL

“The authors have captured the key issues of managing a world-class Demand Planning process. The book strips down a complex subject to its essential elements and explains them clearly and concisely. They use practical, real world examples to illustrate the concepts presented. It is a must for managers responsible for improving their organization’s Demand Planning capability or someone new to Forecasting who needs to understand the basics of proper data selection, forecasting models, or improvement metrics.”
—George Hesser, Demand Management Process Manager, E.I. DUPONT DE NEMOURS

“The authors thoroughly detail current best practices in Forecasting, Demand Planning, and Sales and Operations Planning (S&OP) across all types of industries. It is an excellent educational resource for both the novice forecaster and the experienced planning professional.”
—Richard Herrin, Director of Supply Chain, GEORGIA GULF CORPORATION

“The book is an important contribution to Forecasting and Planning literature, written by authors who have had their pulse on Business Forecasting and Planning for decades. They’ve done an excellent job in blending the body of knowledge from various sources, along with their own practical business and teaching experiences, to produce a very readable book that bridges theory with what is really going in Business Forecasting and Planning. My kudos goes to them!”
—Larry Lapide, Research Affiliate, MIT CENTER FOR TRANSPORTATION & LOGISTICS

“This is a ‘How to Book’ every Forecaster and Planner should have on their desk! The book has provided the Forecasting and Planning community a well balanced view of the science and art of creating a forecast in a very conversational tone. Using real world examples, the authors explain ‘What needs to be done, Why to do it, and How to do it.’ I appreciate the authors for taking the time and effort to put down on paper a summary of their 40+ years of insight, which includes the experience from leaders the IBF has brought together over the years. This is a beautiful work of substance, built on real world experience, and skillfully articulated that anyone in the Planning organization could benefit. Well done!”
—Mark Covas, Senior Director Demand Planning–NACP, GEORGIA PACIFIC

“It is surprising how some senior leaders lack the needed understanding of Demand Planning & Forecasting. They often oversimplify, are mystified, or sometimes just plain wrong in how they think about Demand Planning. This book is an excellent Demand Planning guide, from the process to techniques to metrics to data to systems; it is not just for the novice, but also for practicing professionals. Leaders will find it perfect to educate their teams, peers, and management on critical business processes that keep the supply chain in motion. This book will be a must read for members of my team.”
—Todd Gallant, Senior Director, Timberland Operations, VF CORPORATION

“I found the book to be highly comprehensive and readable, an accomplishment in the often technical subject of forecasting. I would recommend the book to any Demand Planning practitioner as a practical way of maintaining current knowledge in this rapidly changing field.”
—Jay Nearnberg, Director, Global Demand & S&OP Excellence, NOVARTIS CONSUMER HEALTH

“This work is a great foundational book for anyone working in the Forecasting and Demand arena. It provides loads of information in a thorough yet concise manner. Definitely a must have for your library.”
—Curtis Brewer, Head of Forecasting–Environmental Science USA, BAYER CROPSCIENCE

“The book provides a comprehensive review of the Fundamentals of Business Forecasting. It goes well beyond the typical analytical modeling that most forecasting books emphasize. It highlights the relevant and timely business implications of Forecasting and its importance in strategic business processes. Anyone wishing to improve their Business Forecasting results should read.”
—Deborah F. Goldstein, Vice President, Industrial Demand Planning & Customer Fulfillment, MCCORMICK USIG

In his article titled “Seven Deadly Sins of Sales Forecasting” in the March 28 edition of APICS extra, Fred Tolbert compiled a useful list of bad practices than can worsen our forecasting, inventory management, and customer service results. I particularly liked Deadly Sin #5: Senior Management Meddling, and wrote about it on The Business Forecasting Deal blog.  However, I did have some issue with Deadly Sin #1, Using Shipment History, which we will discuss here.

The historical “demand” we feed into our statistical forecasting models play a role in the appropriateness of the forecasts we generate. This history should represent what our customers wanted, and when they wanted it, so any patterns of demand behavior can be projected into the future.

We often misrepresent demand history by attributing demand to the wrong time bucket, or in the wrong quantity. Tolbert shows how easy this can be if we use shipment history to represent demand.

Suppose you receive an order for 1000 units for delivery in July, but are unable to ship until September. If we say that Demand=0 in July (because nothing was shipped) and Demand=1000 in September (when the shipment was made), this doesn’t seem right. The shipments don’t seem to represent the “true demand” of the customer.

Tolbert states, “The appropriate response is to post the 1,000 units as July history for sales forecasting purposes.” But this assumes that Order = Demand, and I’m not convinced this is correct. There are many situations where an order does not represent what the customer truly demands, for example:

• An unfillable order may be rejected by the company or cancelled by the customer (so no “demand” appears in the history).
• An unfilled order may be rolled ahead into future time buckets so “demand” is overstated, re-appearing in each time bucket until the order is filled or cancelled.
• If customers anticipate a shortage, they may inflate their orders in hopes of capturing a larger share of what’s available so “demand” appears higher than it really is.
• If customers anticipate a shortage they may withhold orders, change orders to different (substitute) products, or redirect their orders to alternative suppliers so “demand” appears less than it really is.

“True demand” is a nebulous concept that can be very difficult to capture with the data readily available to us. Unless we service our customers perfectly, in which case Orders = Shipments = Demand, then neither orders nor shipments are a perfect indicator.

Perhaps this Deadly Sin should be restated to read “Assuming you can know true demand” – because you probably can’t. However, as a practical matter for forecasting purposes, it should be good enough to feed our systems with “demand history” that is reasonably close to what true demand really is. When you consider that the typical SKU forecasting error is 30%, 40%, 50% or even more, does it really matter that your history is off by a few percentage points? Probably not.

Joshua Jones-UAHuntsville SMAP Center

This happened to be my first of what I hope to be many encounters with the folks at Institute of Business Forecasting & Planning (IBF) events.  I will never be able to understand how I came to be where I am today in my career, but I am very thankful all the same and feel a strong sense of conviction toward this field.  I can recall at the welcoming luncheon, Anish Jain – IBF Managing Director, stating that “…One of the most critical components of a demand planner & forecaster is passion…” I must say that there is a lot to be passionate about after a conference like this one.

A little about my background, I am a demand forecasting analyst for the Aviation & Missile Command of the U.S. Army.  I am a contractor, which makes life a little easier in terms of work flexibility, but the work itself is far from easy and very different than the private sector.  Being more of a statistician by trade, I understood the analytics and algorithms involved in forecasting but felt it necessary to sharpen my sword as much as possible concerning industry best practices.  This is how I came to discover IBF’s comprehensive educational events such as the one I attended in Scottsdale! 

Because this was my first experience with IBF, I wanted to go through the Hands-On Forecasting & Planning Tutorial to see how my techniques matched up with others in various industries.  Let me tell you… it was well worth the additional $100!  Although I had a working knowledge of a large portion of the topics discussed, it was still very valuable in terms of reaffirming my knowledge and providing  information and tips that I didn’t have prior to the conference.  As an aside, Dr. Fred Andres is a wonderful educator/practitioner and clearly explained some of the more advanced topics that can be rather challenging to articulate without years of experience.   

At the Welcome Luncheon, we were encouraged and motivated by the keynote speaker Deborah Goldstein from McCormick & Co., Inc. and Anish Jain while we sat around the table conversing with colleagues from all walks of life.  One of the greatest benefits that I gained from the IBF conference was the ability to network with all of those amazing people and trade war stories associated with our profession during the various breaks and the round robin discussion session.

The various educational sessions of the second day were extremely insightful, well-rounded and current.   This made it much easier for me  to relate to the various speakers much more easily even though they predominantly worked in industries much different than mine .  It’s exciting to see so many different industries dealing with largely the same issues (forecasting-wise) as I deal with on the government side. 

In closing, there are two comments I would like to make in regards to my experience at this conference.  First, Scottsdale, AZ is one of the most beautiful places to be in the winter and I found the accommodations provided by the Hilton Scottsdale Resort to be virtually perfect in every way.  Second, I truly wish that the conference would have been one day longer.  After the last session ended, I found myself saying, “it’s over already?”  I hope that future IBF conferences will leave us all longing for more as this one did.

“The most reliable way to forecast the future is to try to understand the present.” – John Naisbitt

Joshua N. Jones, MBA
Research Associate I (Demand Forecast Analyst)
UAHuntsville SMAP Center

Raymond Allen - BIOMET

As I write this I am currently flying back from Scottsdale Arizona to Jacksonville Florida after attending IBF’s  Supply Chain Forecasting  & Planning Conference and find myself taking some time to review the last 3 days in my mind. When I arrived in Arizona, I had no idea what to expect. I had never attended an IBF event. My alarm goes off at 5AM on Sunday and I started my morning ritual of preparing for the conference Golf Outing,  a game I love but am no good at. The first person I met was Shan from Utah who I met  while in line for the buffet breakfast prior to meeting the shuttle that was going to take us to the golf course. It was a good thing I ran into him as I was beginning to wonder if anyone was really going to show up as I had not seen anyone as yet.

We enjoyed a nice breakfast and then went to meet the shuttle where I met the first person that I was to meet from the IBF. She introduced herself as Constance Korol, the Director of Marketing for the IBF. She was full of enthusiasm and cheer way too early in the morning, but I appreciated it more than she will ever know. A few more golfers arrived along with Anish Jain, the Managing Director of the IBF. I had the pleasure of playing on Anish’s Team.  However, I am sure next year he will not make that same mistake again. A great time was had by all I am sure.

Now we come to the real reason I am writing this… the seminar.

Day 1:  I quickly found out through mutual networking that everyone in attendance was or has been in the same boat as I am. Basically we were all kindred spirits. When one spends day’s, weeks, and Months explaining the difference between order management and statistical forecasting over and over to someone whose eyes seem to glaze over, it can feel like a dream come true to meet so many others who had been exactly in the same place. It only got better from there.

The first presentation I observed was titled “Account Planning / POS Planning: Beyond Traditional Forecasting.” Steve Tribou did an excellent job as his presentation was concise and to the point. Although, our business does not deal with retail floor display’s I feel I can take the same approach to my business in the set deployment arena.

The Keynote speaker’s talk, “Demand Planning/Business Forecasting: A ‘Real’ Value Added Career,” could not have been better for what I am currently experiencing in my career. Deborah Goldstein did a superb job of keeping everyone in attendance focused and entertained as well as intellectually challenged. I left her speech with many career minded questions that need to be addressed upon my return.

Next I attended “Bull Whips and Beer Games: Integrating Demand Signals for Forecasting and Operational Excellence” Which was given by Jonathon P. Karelse who did an outstanding job.  While I had heard of and read many articles about beer games as well as the Bull whip effect I was still able to walk away with a better understanding of how to keep these occurrences from happening in my areas of concern.

Near the end of the day I spent some time with the guys from Forecast Pro (our statistical Forecasting software provider). They answered a few questions I had and agreed to set up a conference call in the next couple of weeks to get all parties on my team up to date. This IBF conference proved to be an excellent outlet for me to network and catch up with colleagues in addition to the lessons I was able to bring home.

The round table discussion was extremely beneficial.  Again, it was great to hear from so many like minds.

Day 2: The second day of the conference was more of the same; again all speakers were extremely professional and knowledgeable in their areas and answered any and all of my questions.

Someone made a statement that “As long as they got 1 good ‘golden nugget’ to take back with them they considered this event a success”… I guess in that matrix I considered it knocked out of the park!!! I made good contacts, shared many experiences (both good and bad), and learned a ton. If anyone ever asks me if I would attend an IBF event again I would not hesitate to tell them yes. Well I hope everyone got something out of my long winded “Paragraph” but I could always go on and on… Ask anyone who talked to me for even just a minute…LOL. I had a great time in Scottsdale and look forward to seeing you all at IBF Orlando at Disney, October 21-24!

Mike Gilliland AKA: The BFD

At last weeks IBF Supply Chain Forecasting & Planning Conference in Scottsdale, AZ, I had the somber responsibility of facilitating three round table sessions on “Worst Practices in Business Forecasting.”  Thirty-eight of the biggest sinners in the forecasting/demand planning profession confessed to a variety of irresponsible and embarrassing behaviors that we can all learn from:

• Believing Marketing / Believing Sales / Believing the Customer

Faith-based forecasting is not the way to go. Participants in the forecasting process have their own little biases and personal agendas, so when we solicit their input we must stay on guard. Many of these agendas favor an increase in inventory  which is wonderful if you aren’t responsible for overstocks or obsolescence.

• Failing to Account for Cannibalization by New Products

New products are great … for creating a lot of forecasting and supply chain headaches. New product forecasts are very often very terribly wrong, which is bad enough. But we usually fail to account for the impact of new product sales on existing products as well. Will I really continue to buy the same amount of fresh mint dental floss, once I’ve switched to the new cinnamon flavor?

• Over Touching the Forecast

If forecasts could speak Latin, they would probably scream out “noli me tangere!” (Don’t’ touch me!)   There is plenty of evidence that we touch our forecasts too much, and with little beneficial impact. Sure an elaborate forecasting process with lots of participants and collaborative steps sounds like a good idea, but too often these human touch points just add opportunity to contaminate what should be an objective and dispassionate process.

• Confusing the Financial Plan with The Demand Forecast

There are lots of numbers floating around an organization. We usually start the year with an operating plan and financial forecast projecting monthly revenues and costs. But even the best laid plans will need to evolve with the realities of the marketplace. This isn’t such a bad thing when we recognize that the forecast is diverging from the original plan. Recognizing the gap allows us to address the gap by shaping demand patterns to bring us back on plan, or else changing the plan to match the new demand forecast.  The only bad practice is continuing to believe (and execute) a plan that is based on wishes, not reality.

• No Appreciation of the Range of Uncertainty

We’re used to seeing our forecasts as point estimates or a specific number of units (or dollars) for a specific product and location, in a specific time bucket. But wouldn’t it be helpful to know the range of uncertainty in that number? Knowing  that the forecast is 100 +/- 10 units can lead to drastically different actions than a forecast of 100 +/- 100 units. Before making major downstream supply decisions, be sure you understand the likely range of outcomes and not just the point forecast.

• Failing to Address Data Issues

Analysis and modeling need data that is clean, complete, and relevant. While we may do a good job tracking the basics like orders, shipments, and sales revenue, we must take care to not ignore elements that can dramatically impact our forecast. Rigorous tracking of pricing, promotional activity, competitor activities, or other factors influencing demand, allows us to incorporate those factors into our statistical forecasting models. The more work that can be done automatically by the models, the less manual work we need to do when reviewing and overriding those models.

These are just six of many sins confessed during the round tables. Have you confessed yours?

Mike Gilliland AKA: The BFD

There is less than two weeks before the IBF Supply Chain Forecasting  & Planning Conference in Scottsdale, AZ (February 26-28). The annual IBF Golf Outing is on Sunday, February 26.

I myself am not a big fan of the sport (It costs too much, takes too long, and requires way too much social interaction).  But I did catch a little bit of the Pebble Beach Pro-Am on TV yesterday, and to my surprise I saw something strikingly relevant to forecasting.

After someone hit a particularly good or bad shot off the tee, the commentators went on to provide analysis of the swing.  This involved a super-slow motion replay, complete with brilliant observation and sage explanatory analysis. It was amazing — just by looking at a bend of the knee, a twist of the hips, a shift in weight, and the arc of the club head — the commentators could tell you exactly why the shot did what it did.  (Of course, I’m sure it helped that they had already seen what the shot did before they watched the slo-mo replay and concocted the explanation.)

Why is this Relevant to Forecasting?

As Forecasters it can be quite easy to look back in time and explain why something happened? This is exactly what we do when “fitting” a model to historical information. We observe behavior that has already occurred (whether it be a golf shot, or weekly sales), and then proudly assert the reasons why it happened the way it did.

Forecasting is about what is going to happen in a future we haven’t yet seen. It is no coincidence that the “fit” of a model to history can have little relationship to the accuracy of the forecasts. Just like the commentator can provide a perfect explanation for a golf shot he has already observed, we can always find a perfect fit to historical sales (or whatever else we are trying to forecast). While fitting to history should be a consideration in building a forecasting model, it should not be the sole consideration.

We’ll examine this, along with other worst practices in business forecasting, at the round table sessions on Monday afternoon at the conference in Scottsdale.  Ryan Rickard (of Newell Rubbermaid) and I will also touch on worst practices in our ½ day workshop on Monday morning, “What Management Must Know About Forecasting.” The workshop has three sections:

• Review of fundamental forecasting issues like definition of demand, forecastability, demand volatility, accuracy expectations, and evaluating performance.
• Step-by-step instructions for conducting Forecast Value Added analysis, including data collection, data analysis, and reporting.
• Case study on how Newell Rubbermaid is applying these approaches.

While at the event, be sure to pick up a free copy of The Business Forecasting Deal at my book signing during breakfast on Tuesday.

Hear Mike Speak at IBF’s: 

Mike Gilliland AKA: The BFD

For those of you on LinkedIn, be sure to sign up for the Institute of Business Forecasting and Planning discussion group.  This is an active (and addictive) forum for sharing information and perspectives on a wide variety of forecasting & planning topics. The following question was posted by  Reno DiGenova, the VP – Replenishment, Inventory & Demand Planning at Geneva Watch Group, and has garnered 27 responses:

What are your thoughts on changing sales forecast in the same month and why?

The more general question is:  Should you ever freeze your forecast?

It is definitely appropriate to freeze a forecast at some point for measuring forecasting performance. (Otherwise, we could wait until the actuals came in and always hit 100% accuracy.)  The usual practice is to freeze the forecast at supply lead time – that is, the point after which you can no longer impact supply in the period being forecast.  For example,  if the supply in February cannot be adjusted after January 31, forecasting performance for February would be based on the forecast as of January 31.

A more contentious question is: Should you ever change your forecast within the supply lead time? Or going back to our example: Does it make sense to change the February forecast in February, even though you can no longer impact February’s supply?

Elif Kotman and others on the blog point out a benefit of changing the forecast within supply lead time: “Even though the Supply Chain may not change the production or purchases for the current month anymore, they can adjust the planned volumes/quantities for periods in the further future.” This is reasonable as long as you have a high degree of certainty in the change, and that the change is significant.  Small changes are inconsequential so why waste time on them?  Frequent changes terrorize and add nervousness to the planning systems, as Scott Roy and Tommy Jorgensen pointed out in the discussion.

Another situation is when you can make changes to supply within the forecasting bucket.

Many (perhaps most) organizations plan supply in weekly buckets, even though they do sales forecasts in months. Richard Watson makes a strong case for weekly forecasting, “…because it enables 52 data points in the year creating a clearer definition of the demand pattern, allowing the organization to be more dynamic, while at the same time simplifying tracking and monitoring mechanisms.” Aligning forecasting and planning buckets also avoids the messy conversion between months and weeks.

Join IBF’s discussion group on LinkedIn, and make these conversations a regular part of your working week.  And if that is not enough, join us in Scottsdale, AZ (February 26-28) for the IBF Supply Chain Forecasting & Planning Conference which includes:

• Monday morning ½ day workshop on “What Management Must Know About Forecasting.”
• Round Robin Roundtable Discussions on various topics including Worst Practices in Forecasting.
• Schedule a 30-minute consultation with me or one of my SAS colleagues from professional services and R&D. We’ll be ready to discuss your biggest challenges related to forecasting process, statistical modeling, or whatever you have to throw at us. Send me an email (mike.gilliland@sas.com) to reserve a time, or sign up at the SAS booth at the event.
• Free copy of The Business Forecasting Deal (book signing during breakfast on Tuesday).

Register by January 27 and enjoy early bird pricing and free participation in the IBF Golf Outing. (Based on past scores from the outing, actually being able to golf is not a requirement.)

 Hear Mike Speak at: 

Michael Morris - Yamaha

Have you ever pitched a new idea or process improvement where everyone agreed, but  you kept running into road blocks once you began the implementation? It seems that most everyone believes in “change” until it starts to affect them. The more you can manage or mitigate change, the more successful you will be.  There are several approaches to help reduce the heartburn associated with change management. Everything from basic education to even some mild underhandedness is fair play in my book; whatever it takes to make the implementation successful.

One key approach is to leverage power. This should be executed with forethought and care. And when I say this, I mean that you really have to do your homework in order to find out who your “ace” is going to be. Don’t necessarily go straight to the CEO; that may not be your best bet. If the CEO is too busy, you may not get the attention you need when you need it.  You need to find someone with horsepower who is available when you need them.  Gain their support by speaking their language; if your “ace” is the CFO, your approach should focus on saving money. If your “ace” is the VP of Sales, focus on better supply. You need to “Sell” the benefits of the new process in a way that your “ace” will understand it.

I was into year two of pitching my new forecasting process and was fighting an uphill battle when I got a call from the president of the company. He had seen my presentation and had heard my pitch many times before, so I was thrilled when he asked me for a “one on one” to explain, in detail, exactly how the new process would work. I’m not sure what prompted him to ask for the meeting, but it changed everything for me. He wanted to know it all; how the current process worked, how the new process would work, when we would be able to utilize the first forecast, and what kind of accuracy was I expecting? When I left that meeting, I knew he had an intimate understanding of what I wanted to do and that I finally had my “ace”. From then on, it was clear to everyone that the forecast project was “per the president” and things became quite a bit easier…

Everyone wants sound and efficient processes; the trick is getting them to implement one  with the least amount of heartburn. Having some “Horsepower” in your back pocket is essential in helping you achieve your goals.

Michael Morris CSCP, CPIM, CPF, PLS
Inventory and Planning Manager, Keyboard Division
Yamaha Corporation of America

Hear Michael Speak at:

Mike Kelleher - Hollister

Motivational speaker Lou Tice called it a “Scotoma”—an area of partial alteration to one’s field of vision.  Allstate Insurance represents something similar in one of it’s television commercials featuring a man by the name of “Mayhem”.  In this particular ad we see Mayhem clinging to the side of an unsuspecting woman’s SUV claiming to be her blind spot. Acting as the woman’s blind spot in her car he tells her its all clear to change lanes however, when she proceeds to change lanes she crashes into another oncoming truck.  How can this so called “blind spot” affect a company’s demand planning & forecasting process or even the bottom line?  If this blind spot impacts management, could it impact the entire team?

The answer is yes it can.  I had been working in the forecasting and demand planning fieldfor 17 years when I discovered that I was the blind spot, the Scotoma, in the process.  I came to understand that I had allowed my wealth of experience to overshadow the needs of the company.

In the session I will be giving at IBF’s Supply Chain Forecasting & Planning Conference in Scottsdale, AZ you can hear not only some of the warning signs of a potential blind spot but also how to re-energize ideation in yourself and others in order to eliminate the blind spot or neutralize its effects.  I will also provide five important qualities that reporting should contain, and I will touch upon the qualities of a great forecaster as well.

We are fortunate to enjoy the world of forecasting.  Forecasting mixes the discipline of science with the beauty of art.  I hope you will join me in generating ideas and lighting a new path to success.

Michael Kelleher
Chief Forecaster – North America
Hollister

Hear Michael Speak at IBF’s 

Mike Gilliland AKA: The BFD

Forecasting performance objectives are usually set in one of three ways:

• Relative to “best-in-class” industry benchmarks.
• Improvement over prior year performance.
• Arbitrarily – based on what management wants or needs to happen.

All three are wrong.

• There are many perils in relying on industry benchmarks to set your own organization’s performance objectives, the most important of which is relevance. The organization with best-in-class forecast accuracy probably achieves this because they have the easiest to forecast demand.

If your organization does not enjoy similarly favorable “forecastability” of its demand patterns, then there is little hope of achieving best-in-class performance.  Setting unreachable goals just demoralizes the forecasting staff, and encourages them to cheat.

• In general, improvement over prior performance is an appropriate objective. However, we must be wary of the context in which that improvement is measured.

If there are no substantive changes in the forecastability of demand patterns from year to year, then improvement in forecast accuracy (or at least, not doing worse!) is a reasonable objective.  However, what if forecastability changes?  This occurs when demand patterns change, either organically (without our intervention), or due to our own sales, marketing, and financial practices.

For example, switching a product from everyday low pricing (EDLP – where prices remain constant) to hi-lo pricing (where temporary price cuts create spikes in demand), would greatly increase demand volatility, and reduce forecastability.  If a product were under EDLP in 2011 and hi-lo pricing in 2012, we would actually expect reduced forecast accuracy in 2012.  Insisting on improved accuracy after such a change would be unreasonable.

• Forecasting performance objectives must be based on what is reasonable to expect, given the nature of demand patterns.  Simply pulling a number out of the air, such as “MAPE for all products must be <20%” is inappropriate and irresponsible.

What if demand patterns are highly volatile, and 20% MAPE is not achievable – then you give the forecasters every reason to give up or find a way (by gaming the metrics) to achieve the goal.  Or, perhaps demand patterns are very easy to forecast and the goal can be reached by just using a naïve model? How hard are your forecasters going to work to improve accuracy if they can beat the goal by doing nothing?

My Gift: Your 2012 Forecasting Performance Objective

As pathetic as this may sound, perhaps the only reasonable objective for 2012 forecasting performance is to beat a naïve model (or at least do no worse), and continuously improve the process.

Improvement can be demonstrated by reducing the error and bias in the forecast, increasing the Forecast Value Added, and becoming more efficient at executing the forecasting process (spending fewer resources).

If you can achieve 20% MAPE by using automated statistical forecasting software – or by using an elaborate collaborative and consensus process occupying all of your sales reps, planners, customers, suppliers, and executive staff for several hours every month – which is the better way to go?

Why Management May Hate This Gift

So for your 2012 performance objective, what MAPE (or whatever other particular metric you use) must you achieve?  Sorry, I cannot tell you.  (That is the part that management hates.) Your goal is to do no worse than a naïve model in 2012, and we won’t know how well a naïve model does until the end of 2012.

You must first choose an appropriate naïve model (e.g., random walk, seasonal random walk, etc.).  Then you must track your organization’s forecasting performance each period and compare that to what your naïve model achieved.  Whichever does better in any particular week or month doesn’t matter – short term results can be due to chance.  But by the end of the year, you should be able to draw one of three conclusions:

1. We forecast worse than a naïve model.
2. We forecast about the same as a naïve model.
3. We forecast better than a naïve model.

Conclusion 2 means that your process is in a statistical dead heat with the naïve model – you cannot reject the null hypothesis that there is no difference between the two approaches.  If you are committing a lot of resources to forecasting, you may want to redirect those resources to more productive activities.

If you achieve 3, congratulations, your forecasting process is doing its job.  Take pride – as this can be surprisingly more difficult than it appears it should be.

If you achieve 1, then welcome to the unfortunate reality of business forecasting – where organizations are often best at making a tough problem worse.

Happy holidays…

Bio: Michael Gilliland is Product Marketing Manager at SAS, and author of The Business Forecasting Deal.  Mike is a frequent contributor to the Journal of Business Forecasting, and (along with Ryan Rickard of Newell Rubbermaid) will be delivering a half-day workshop “What Management Must Know About Forecasting” at the IBF Supply Chain Forecasting Conference in Scottsdale, AZ, February 26-28, 2012.  Conference attendees will receive a free signed copy of his book.  You can follow Mike’s blog, The Business Forecasting Deal, at blogs.sas.com/content/forecasting.  Furthermore, Mike will be contributing on a monthly basis for IBF’s demand-planning.com blog.  Please submit your topic ideas to the IBF here: info(at)ibf.org

Hear Mike Speak at IBF’s: