You know WHY reducing forecast error is important – accuracy is directly linked to corporate profitability. But how do you know WHEN you should look into new forecasting technology? After listening to our customers and numerous conversations with CPG, distribution and manufacturing companies, here are 6 Indicators it’s time to look at new demand forecasting software:
1) Your forecast error is 50%*.
While 50/50 odds are great in Vegas, they are poor for critical business decisions. Imagine standing before a room of shareholders and telling them they have a 50% chance of making money. Forecast error of this caliber can be especially hard to swallow if monies have been spent on solutions that haven’t performed or lived up to expectations. Either way you spin it “throwing darts at a dartboard” or failing to forecast at all is a direct shirking of your fiduciary responsibility.
*Or even 10% error since once you get down to the execution-level accuracy is drastically diminished.
2) Your data has outgrown your homegrown system.
In the days of “Plan Source Make Deliver” information was siloed and unidirectional. However, now that technology accurately portrays supply chain complexity, the data you’re collecting adds up fast. It isn’t uncommon for POS, market information, etc., to sit in a database never utilized. You spent time and energy enabling systems that could collect it so you should use it. For as great as they once served your organization, the homegrown tools developed by Excel whizzes and data jockeys over the years can only do so much. There comes a point when the hours spent forcing the system to work aren’t worth the performance. Are you at that point?
3) Your customers want to collaborate and shared visibility.
With these buzzwords flying around conferences and research documents you can expect that this will be request from your customers sooner rather than later. Your customers have customers and they want to have the best data available to know what’s coming down the pipe to set expectations. The benefits here are twofold. Laying the foundation for collaboration and investing in enabling technologies now will set you up for success when the time comes to execute.
4) Your boss is haranguing you to reduce inventory.
According to a Gartner study, “better demand forecasters have 15% lower inventory.” Now is the time to get ahead being that Accenture found that companies who employ predictive analytics hold 50% less finished goods inventory than their competitors. These numbers speak for themselves. Inventory is the biggest and least productive asset on the balance sheet so accurately forecasting will make you your CFOs favorite colleague.
5) Your competitors are investing in S&OP enabling technology.
They are becoming leaner, meaner and more agile. While you’re waiting for a spreadsheet to be updated and passed around between sales, production and finance – they are receiving alerts and have real-time data to make faster, better decisions. It’s a commoditized world and your customers have options. With the rate at which information flows it’s won’t be long before they hear from a colleague how much better they’re serviced by the other guys.
6) You want to hit your bonus.
Be good at your job. Scratch that. Be GREAT at your job. If you own the forecast your compensation metrics are more than likely tied to accuracy. You’re going to have to be passionate about pursuing new technology for forecast as you will be asked to be the “champion” through the selection process. But when your personal finances are in the mix taking on the burden will be well worth your while.
We’d love to hear your thoughts. What are the reasons that get you thinking about new forecasting technology?