IN ORDER TO IMPROVE THE QUALITY OF BUSINESS DECISIONS

Improving Forecast Performance

1

Elements of Forecast Performance

AccurateTimelyInternally ConsistentRealistic AssumptionsRisk SensitiveDemonstrates Range of Outcomes

Accuracy Forecasted Outcomes

2

Elements of Forecast Performance

Meets Diversity of User NeedsReflects Business Segmentations Used in

Management and Management DecisionsIncorporates Intelligence of Functional

GroupsReflects Expert Opinion & JudgmentCommunicated Clearly and Concisely

3

ACCURACY IS IMPORTANT!

But is not the sole factor in improving forecasting

performance

4

Measure, Track, and Evaluate Accuracy!

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Forecast to Take Advantage of the Pattern of Error!

6

Mean Average Percent Error(MAPE)

Source: IBF 2007 Survey

7

Employ Operational Metricssuch as……..

Customer Satisfaction RatingsOrder Fill RatesOrder Fill TimesCustomer Service CallsCustomer Service Response TimesInventory Levels & TurnsShipping TimesSpace Utilization RatesProduction and Storage Capacity Levels

8

Use Ranges…..Not Just Point Estimates

Forecast Ranges 99% Confidence (3sd) 95% Confidence (2sd) 68% Confidence (1sd)

Accuracy Ranges 99% Confidence (3sd) 95% Confidence (2sd) 68% Confidence (1sd)

9

Use Simulation ScenariosGather Key Concerns of Business TeamModulate Key AssumptionsEstimate Scenario Subjective Probabilities Evaluate Business Issues of Alternative

OutcomesFocus on Extremes - Best Case and Worst Case

OutcomesWork with Management on Hedging and

Business Action Strategies

10

QUESTIONS??

CSI-S&OP:Why S&OP failsA brief look some causes for failed S&OP processes

Diagnosis of S&OP?

Right definitions Will help understand what it is Will help drive the process

Reasonable expectations Will help set the agenda Will help drive accountability Will help push for follow up

Right people Not too many/not too few Communication is critical

Right Data

“Where does it hurt?”

How often is your S&OP? Who schedules it? How hard is it to move the meeting? What if you can’t attend?

Symptoms

Lack of Upper Management Support If it important to upper management it will viewed as

important to the whole company Sometimes decisions will be dramatic and need upper

management support to carry through

Remedy You need a sponsor from upper management who will

“Champion” the process Show some positive early results. Even though they

may not be quantitative. Begin engaging upper management in the process

Symptoms

Lack of Goals and Expectations Set specific goals/takeaways from the meeting Make goals reasonable and achievable Involve everyone in the expectations

Remedy Key Performance Metrics Follow ups

Symptoms

Incorrect or Irrelevant Data Balance between history and forecast (don’t

be too “forward thinking”) The correct forecast model Dollars vs. units Budget or Operating Plan

Remedy Continue to review the relevance of the data Update the data Don’t be afraid to use new data

Symptoms

Lack of Communication Make sure lower levels of management have clear

direction of the decisions made in S&OP Publish relevant data to those not in S&OP Make sure all departments communicate the same

message

Remedy Have team member specifically in charge of getting

communication into the right hands Publish something that it quick and easy to read

Symptoms

Lack of Consensus/Agreement Leave “politics” at the door Look at the “Big Picture” Don’t play the blame game

Remedy Check baggage at the door Build TEAMWORK If possible, cross departmental work

Symptoms

Incorrect Focus It involves the entire company. Needs to have direction

Questions

August 24 & 25, 2009

www.ibf.org/0809.cfm