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The Evolution of Business Forecasting
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Back in the mid-nineties, I attended a conference on business forecasting. The focus was on the science of statistical forecasting, and, well…I may have drifted off during the second half hour of discussions on Winters’ triple exponential smoothing.
Fast forward 20 years to 2015.
I will be attending a business forecasting conference with a focus on the practice of demand planning and forecasting. Topics cover good stuff like organizational alignment against a single forecast and how to engage all functional areas with the forecast development process. In the past, most attendees were from the manufacturing sector. Today, the attendee list includes many distributors and retailers, indicating a broader recognition of the benefits of implementing a demand planning and forecasting practice.
The upcoming conference even includes representation from a large US healthcare organization — not just attending, but also speaking about their demand planning processes. Quite a surprise since healthcare providers have been slow to adopt modern supply chain practices. This is evidence of an emerging awareness most likely fueled by the affordable care act which its changes in reimbursement that threaten to significantly reduce revenues. Kudos to this leading healthcare organization for sharing their story!
Organizations that want to mature their demand planning practice must add value to their statistical forecast and measure their performance in doing so. The added value comes from gathering insights that will impact forecast numbers. For example, planners are no longer working in isolation; they are collaborating internally and even externally with supply chain partners. Because of improved processes, planners are more aware of product lifecycles and of planned marketing and sales initiatives that will impact future demand. Furthering this evolution, organizations that measure forecast accuracy may apply demand shaping strategies in the form of price changes and/or marketing campaigns in order to meet revenue objectives.
The rewards are great! Without compromising desired service levels, companies are able to maintain much lower inventories. In this way they are liberating millions of dollars normally tied up in inventory and refocusing that capital on growth initiatives. This is the promise of demand planning and forecasting. The changes over the last 20 years have been evolutionary and revolutionary – this upcoming conference will have my full attention.