Supply chain leaders must quantify the benefits of improved forecasting.
It’s no secret that companies that are better able to see the demand that’s coming are better able to respond to it. However, supply chain leaders responsible for demand management often struggle to demonstrate the value that can be derived from an improved forecast, making it difficult to build the business case for further demand management investment.
Speaking at Gartner Supply Chain Executive Conference in Phoenix, Arizona, Steve Steutermann, managing vice president at Gartner, outlined four steps that can help build the business case for further investment.
“In an ideal world, the accuracy of our demand forecasts would improve over time, and we would always hit our forecast targets,” said Mr. Steutermann. “In reality, though, there are many obstacles, such as accountability for forecasting inputs, spikes in demand volatility, unforeseen market or category trends, and item proliferation that contribute to forecast error.”
Gartner’s four step plan incorporates:
Understand best practices
Building the business case starts with understanding what to prioritize and invest in to improve forecast accuracy. After all, it’s difficult to build an internal business case for investment if you do not know the best practices and have not identified a roadmap to improve the forecast.
It’s essential to be able to make a direct link between forecasting accuracy improvement and customer service, cost, efficiency, inventory, cash flow or capability improvements.
Best practice starts with having a highly governed, repeatable consensus demand planning process complete with cross-functional participation from demand planning, sales, marketing, finance and supply chain. Executive sponsorship, accountability for forecasting inputs, the understanding of sources of error, performance metrics and the effective use of demand management technologies are all critical requirements in producing an accurate plan.
Quantify the benefits from an improved forecast
Companies are often so focused on improving forecast accuracy they lose sight of what’s really important — that is, addressing what to do with an improved forecast. Supply chain leaders must do their homework and quantify the benefits from an improved forecast and demonstrate how these benefits address business priorities.
Improvement in forecast accuracy enables companies to develop actions to refine their supply strategies and design supply buffers to address products or segments that are harder to forecast, and reduce inventories and time buffers for segments that can now be better predicted.
“It’s essential to be able to make a direct link between forecasting accuracy improvement and customer service, cost, efficiency, inventory, cash flow or capability improvements,” said Mr. Steutermann. “It’s also worth going the extra mile and quantifying the win for, or risk to, the organization if the initiative is not funded.”
Benchmark your industry
Benchmarking can play an invaluable role in winning the business case for demand management investment. Understanding the difference between average forecasting performance and best-in-class performance can create impetus for investment while establishing new targets.
Benchmarking can help to identify gaps and opportunities in your organization’s demand forecasting capability. Knowing your industry’s forecasting performance metrics helps you to understand where you stand among your industry peers and how far you can go.
Leverage the success of others
Finally, don’t assume that you have to go it alone. There are companies to study, watch-outs to consider and critical success factors to learn from others who have taken the demand management journey before you. Whether you are looking to improve your demand planning process or invest in additional technology, you can boost support for your business case through collaboration with others.
Gartner clients can read more in “Win the Business Case for Investment to Improve Forecast Accuracy.”