Academic journal article The Journal of Business Forecasting

How to Outsource Successfully Life Cycle Management Forecasts

Academic journal article The Journal of Business Forecasting

How to Outsource Successfully Life Cycle Management Forecasts

Article excerpt

Describes in detail what is needed for the success of outsourcing life cycle management forecasts ... discusses four case studies to get a handle on the issues ... collaboration among different stakeholders is the key.

Outsourcing has been used extensively for more than 1 5 years with two objectives: Cut costs and improve service level. The work that is often outsourced is the repetitive work; the strategic work is often kept at home. Forecasting is outsourced particularly by companies that do not have their own forecasting function, and by those which recognize its importance.

Life cycle management (LCM) of the maturity or declining stages of products is an area of opportunity that often is not fully tapped. A key function within LCM is sales forecasting and demand management. However, forecasting capabilities in some industries have not kept up with the needs. One way to satisfy the increased forecasting needs is to outsource the LCM forecasts.

Outsourcing is driven not only by increased LCM forecasting needs, but also by business expansions, lack of internal forecasting organizations (IFO), and increased pressure to speed up the turn-around time. The purpose of this article is to cover issues that often arise and describe the processes and guidelines needed to get value from outsourcing. Also, due to uncertainty related to how outsourcing works, it shows what type of migration path one may follow from a current state to a fully outsourced LCM forecasting project. Outsourcing of strategic forecasting raises different issues, which are not within the scope of this article.

KEY OUTSOURCING ISSUES

Outsourcing forecasts can free up the IFO resources to be directed towards more strategic and sensitive nature forecasts, but it can also be expensive and involves risks. Before outsourcing a forecast, certain issues have to be resolved:

1. Decide on forecast components to be outsourced. They may be demand analysis, model development, update of routine forecasts, forecast simulations, and/or scenario forecasts.

2. Select the appropriate forecast vendors. This can be done by interviewing reputable forecast vendors and checking their forecasting experience.

3. Determine your client expectations, as well as what should be the terms of outsourcing and service level agreements.

4. Assess all costs and benefits of outsourcing and their impact on the IFO productivity.

5. Decide on the forecast sanity measures and how they should be used, as well as how confidentiality of information will be maintained.

6. Decide on how the outsourced function will be managed. Here one has to develop a specific process for oversight.

7. Decide on the specific roles and responsibilities of a client and the forecasting vendor.

8. Decide on the vendor deliverables while maintaining forecast quality and integrity.

9. Set guidelines for resolving conflicts with a vendor.

OUTSOURCING MODEL

A successful LCM forecast outsourcing model has three phases: The forecast proving phase, the expanding outsourcing phase, and the vendor performing all the forecast function phase, which are described in Figure 1.

The primary stakeholders in the outsourcing process are the client (the one that uses forecasts), the IFO, and the forecasting vendor. The secondary participants are Finance, the Portfolio Management group, and - sometimes-the Marketing and Product Management groups. The necessity of managing outsourced forecasts is fully recognized; however, in the absence of good models and how to use them, one is presented with a significant challenge.

There are several options for outsourcing LCM forecasts, each requiring different roles and responsibilities of the participants. In our experience, the best way for an IFO to manage it is to do the following:

1. Evaluate and clarify the client needs and requirements.

2. Set up a process from start to finish that specifies, among other things, interfaces and project schedules. …

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