Worst Forecasting Practices in Corporate America and Their Solutions-Case Studies

Article excerpt

Describes some of the worst forecasting practices in corporate America and what can be done about them ... worst of all is that some feel that they are doing a good job in forecasting, while others have products they believe cannot be forecasted ... the person selected as a champion for forecasting should not reside with any functional area.

I have worked in dozens of medium and large companies as a consultant or logistics manager, and not one of them had forecasting / demand planning processes that could be considered effective. They did not believe they needed to pay much attention to improving forecasting, though they needed some forecasting capability, which might not be fully leveraged or properly understood. Furthermore, they did not feel that they need a complete overhaul requiring major changes in existing processes. In my experience, many companies have no forecasting capability at all because they feel it's not necessary at their companies.

Some of these companies are profitable, well heeled, and stable, while others are in obvious decline, struggling for a way to survive. It does not seem to matter how the company is performing, how old it is, whether it is large or small, technologically savvy or not - none possessed a satisfactory, value-add forecasting capability and process for continuous improvement. This does not mean, of course, that there are not any companies serious about forecasting, but my observation is that such firms are in the minority.

Forecasting problems are myriad, but one consistent theme abounded: executives do not know the difference between a Forecast and a Plan. Hence, organizations are confused as well. If you cannot differentiate between a plan and a forecast, and the organization doesn't consider forecasting function as a driving force for the highest possible performance, leaders should not be surprised when one or all of the following occurs:

* They have excess inventory and don't know why.

* Production and logistics are constantly engaged in fire drills to deliver product and thus forced to use emergency / expedited shipping.

* Item-level business planning is nonexistent, inaccurate, or considered an exercise in futility.

Other problems include:

* Lack of serious effort to improve forecasts.

* No incentives, metrics, or performance reviews regarding forecasting.

* Forecasts are created, reviewed, and acted upon only at low organizational levels.

* Forecasts are continually changing, adjusted to account for earlier misses.

* Multiple forecasts exist - forecasts of marketing, logistics, etc. Each one is driving its functional area with its own forecasts, which are not in sync with anyone else.

* Forecasting tools are not either properly understood or not available.

* Similar efforts are made for forecasting "D" items (<1% of sales), as well as for "A" items, which drive more than 80% of the business.

* Forecasting is deemed impossible without significant knowledge of forecasting, which they believe nobody has.

The president of one of the Fortune 500 companies once said: "We can't forecast-we just respond to the customer!"

Is it true that there is simply no better way to predict future sales? The short answer: No. But there is always a way to improve forecasts. Furthermore, a process for better identifying sales trends, future orders, and building collaboration among functional areas can also always be improved. The problem list goes on, but the issues are fundamental. Companies certainly spend time, money, and effort on forecasting, but often without strategically leveraging the function. That is to say, the forecasting efforts are not deployed to increase profits and sales, and lower operational and inventory costs. Over the course of my 15 years in supply chain management, consulting, and demand planning, I have seen the lack of forecasting capability transcend all industry types-rust belt manufacturers, technologically savvy companies, giant retailers, and companies you would think know better. …