Forecasting Strategy

In many of my previous articles I have talked about Planning or Forecasting Strategies. What is this Forecasting Strategy? I have been asked and How do you define such a thing?

A Forecasting Strategy is a master plan to continuously improve the Information & Technology and People & Processes involved in the creation of company forecasts. To put it simply, it evaluates how good you are at forecasting, how much better you would like to be and how to achieve that improvement.

The main task of Demand Planners is to create a forecast, measure its accuracy and make it better. The task of a Forecast Strategy is to do exactly the same thing but by assessing all the elements involved in creating a Forecast from the systems and methods to the department structure and cycle times. The Strategy creation steps are:

1. Evaluate your maturity level (how skilled you are at Forecasting)
2. Select the maturity level you would like to reach (how skilled you want to become)
3. Define a Strategy to reach the maturity level you desire (systems, training etc.)
4. Create, Execute & Repeat plans to deliver and refine the Strategy

Evaluate.

This is the starting point. This requires self-analysis and reflection. Do you have people, systems and processes that are fit for forecasting purpose? Are your forecasts fast enough, accurate or used enough? Is there chaos and disagreement? Is Ownership Clear? Do you have persistent internal Bias?

These questions (and many more) should be asked but since that takes time, before you start investigating, consider where you are in the 4 basic states of Planning Maturity:

• Basic: Low maturity and little planning awareness. No integrated sales forecasting, demand planning or replenishment processes. Information produced is not very accurate or timely, owners and planners may create the plans as a side-task and are not directly in touch with buyers and customers. Forecasting is a task. Low maturity and little planning awareness.
• Regular: Average maturity with growing planning awareness. Processes are becoming more integrated and incorporate wider sets of data. Planners have training and more of the right people are involved in producing plans. Accuracy is not improving consistently enough, and the plans and forecasts are still not timely. Average maturity with growing planning awareness.
• Strategic: High maturity and good planning awareness. Integrated sales forecasting with demand planning & replenishment. Owners and Planners are close to customers and using an efficient process. Key Performance Indicators are measured, reported and rewarded. Forecasts are trusted throughout the business. High maturity and good planning awareness.
• Innovative: Class-leading maturity with high planning awareness. Collaborative sales forecasting and demand planning process that utilises all the key people, the latest data and the best systems. Information collected and used includes elements such as Point of Sale & Internet of Things. KPI's are measured, reported, rewarded, reviewed and changed as needed. Re-forecasts and re-planning is frequent and within the shortest possible cycle time. Forecasts are trusted and used throughout the business. Class-leading maturity with high planning awareness.

Select.

Where do you see yourself in five years' time? Use the broad benchmark of Planning Maturity to ascertain where you are, where you'd like to be and also what is feasible to get to. Of course, it may be that you touch multiple maturity states, and this is quite normal and indeed, is the reason for creating a Strategy in the first place. Each business situation will be unique; some will have constraints that prevent a basic element from improving while others will have a clear opportunity to raise a piece from strategic to innovative.

This is the fundamental starting point of a Forecasting Strategy since awareness enables the definition of a purpose and a plan to improve. Measuring the benefit of achieving better state of maturity will enforce the message and release budget to make it happen. A more mature forecasting state equals more accurate forecasts in a faster cycle and happier planners who treat forecasting as a vocation not a task.

Define.

Scope it out first

Before building the Strategy itself, we first need to consider the scope since what you want to achieve will vary greatly depending on your starting point, ambitions, schedule and budget. Are you assessing the entire planning process from Annual Plan to Returns and Deduction Settlement or is this just Demand Planning? Once the business scope has been set you can then determine the extent of your ambitions, there are two basic considerations:

Unconstrained or Constrained

Nothing is Impossible. An Unconstrained Forecasting Strategy recognises no boundaries! This is a 'Blue Sky Thinking' approach which allows a full analysis and consideration of any process or solution using any resources or processes. Although this might traditionally be used when starting from a low base (such as pure spreadsheet based) it can be useful to question your methods and priorities without the limits of technology or capability.

To properly succeed this approach will require good knowledge of forecasting principles and technological possibilities. System Integrators, Solution Providers & Specialist S&OP and IBP firms will provide insight (to the things they want to sell) but can be a good starting point. Consider Conferences & Trade Shows, Journals, Books & Blogs as sources. Don't neglect the opportunities afforded by contacts in other companies, neighbouring businesses and competitor announcements either. All of these inputs can be used to break the shackles of internal blinkers and consider alternatives.

The Art of the Probable. A Constrained Forecasting Strategy is when you only consider the opportunities for development within the solution, process, resources and data that you use. This is perhaps the most traditional approach since it takes less time, requires fewer resources (probably only internal) and focuses on the possible and practical. This type of forecasting strategy can be used to target very specific areas of problems: such as Engine Tuning.

Strategy

The risk with a constrained forecasting strategy is that it can limit ambitions to a subset of people, process or information and technology. This in turn means that instead of creating a strategy you are simply executing a project plan: once the plan has delivered its task, the forecasting state returns to its previous state.... Don't allow this to happen.

A Forecasting Strategy should be considered as a permanent program; never stop looking for ways to make the forecast better. If you are nodding in agreement that a forecasting strategy is necessary, then I recommend you take the following steps:

1. Create a Planning Community (internal). Either build a department or create a collaborative team. Your Business culture should dictate the format but never be lip service - this journey really can transform everything.
2. Enable the Planning Community to gain greater understanding of Planning Principles & Learn Demand Planning skills. Discussion, Training, Brainstorm. Allow the Community to recognise the power and opportunities ahead.
3. Allow the Planning Community to understand (and shape) the Company Supply Chain Planning Strategy. Task them with going back to step 1 and allow them to own the strategy cycle.
4. Make Planning part of you Culture. Bring the Planning Community representatives into the Board Room. The expertise and knowledge of the planning community will be able to answer significant questions on business opportunities and highlight risks and rewards that may not otherwise be apparent.
5. Become part of the Planning Community (external). Schedule visits with neighbouring companies and competitors. Go to conferences and write white papers. Reach out to IBF, University & LinkedIn Supply Chain leaders and innovators; access and exploit the on-line community. Become planning leaders.

Having decided the scope and the resource approach to resolving your forecasting capability shortfalls the next element is to make it happen.

Create, Execute & Repeat.

Go to MoSCoW (other methods are available).

Down to the brass tacks. Having decided where you lack skills and where you'd like to improve them you need to create a list of all the things that have been identified. It could include: People (more planners, training, re-organised office, etc.), Processes (change the demand review date, get to a weekly forecast, etc.), Technology (larger screens, engine tuning environment, etc.) and Data (collect customer data, obtain sell-out data, load promotions for the next year, etc.).

With a big basket of delicious desirables, it is time to prioritise them and organise them into a pathway for success. A MoSCoW list (Must have, Should have, Could have, Wont have) or similar will help in this regard.

Build a plan and communicate it to the planning team & the company about how the new Forecasting Strategy will deliver better, faster forecasts and insight to aid business development. Start delivering and communicate the news as benefits appear. Don't stop when the tasks are done - evaluate on a regular basis and repeat.