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Improved forecast accuracy leads to many downstream improvements in operations and ultimately, on the balance sheet. That is why Gartner, Inc., a highly respected information technology research and advisory firm, puts forecast accuracy at the top of its pyramid of supply chain metrics. In a study published in February 2012, Gartner stated that a 6% forecast improvement could improve the perfect order by 10% and deliver a 10-15% reduction in unnecessary inventory. These are very impressive numbers and a very good reason to work towards improving forecast accuracy.


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I was reminded recently that there are really only two ways to improve your organization’s profitability; increase revenues or decrease costs. Arguably, increasing revenues does not necessarily translate into higher profits.Take a moment to think about how much revenue it would take to bring the same amount of dollars to the bottom line as would a 2% decrease in operational costs.

 

Consider the cost of a shipping error. Shipping errors results in lower customer satisfaction and potentially affect customer retention rates. Customer service personnel can spend hours addressing a shipment error. Warehouse personnel must investigate what happened, potentially restock the wrong item then pick, pack and ship the correct item. A rush delivery further erodes any margins left on the sale. Even cash flow is affected. Accounts receivables staff may need to be notified.


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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.


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