SGS-Maine Pointe consultants on improving demand forecasting
Dorothea Grimes-Farrow and Michael Conley, consultants at supply chain specialist firm SGS-Maine Pointe, in a recent Supply Chain Management Review article examined how sales, inventory, and operations planning (SIOP) can help companies improve the accuracy of their demand forecasting.
The article – titled “Demand planning/Demand management: Winning the battle for improved forecast accuracy” – notes that the volatility of the Covid pandemic has thrown previous forecasting strategies into disarray. However, using a few simple metrics and process steps can help organizations improve their forecast accuracy in a matter of months, the authors say.
One step is connecting front-end business operations’ demand and supply planning to elevate and continuously improve forecast accuracy. Front-end, SKU-level data is a popular target that may not be available to all companies, but a useful alternative would be mining an aggregated level of demand data – which can also product accurate forecasts.
Supply chain leaders must then decide the right level of forecast to drive optimal results and the level of data available from their systems. Grimes-Farrow and Conley say that, in determining the appropriate level to create demand forecasts, individual items can be clustered in several ways. They can be grouped by the way they sell through various channels; the methods by which products are produced; and by the complexity of each product offering. The consultants note that line-item extensions are usually better planned at brand-level, while industrial products are better planned with an eye towards raw materials and manufacturing those materials into similar products.
After answering the above questions, companies will have a better aligned aggregation of demand to create stronger forecasts that support optimal safety stock calculations.
The next step is leveraging an SIOP process to guide the organization to a well-planned order fulfillment strategy that meets forecasted demand – benefitting from higher fill rates and customer experience levels. The SIOP process involves integrating sales, marketing, supply chain, operations, and finance with the executive team to drive alignment and synchronization across organizational functions.
According to Grimes-Farrow and Conley, SIOP drives disciplined demand forecasting through a 360-degree consensus that links front-end functions such as ideation, sales, marketing, and engineering to supply chain processes.
In terms of target accuracy, companies should aim for the high-90s percentagewise. Feeding back variance data and actual results into the SIOP demand planning process can help drive continuous improvement and higher accuracy.
