Causal Factors in the Recent News – Using Them for Your Forecast?

Great information in the news this week – I am sure everyone reads the news with a specific focus on how to improve forecasting and S&OP, right?  Anyway – to the point.

Yields on 10 year treasuries rose 11 basis points.  Claims for jobless benefits fell to a 5 year low. US home sales for the month of Dec. fell 7.3%, with a 1.3% increase in average sales price, but for year over year sales actually increased 8.8%, with a 14% rise in average sales price.

From an S&OP and demand planning/forecasting point of view, this information raises some interesting questions about causal impact and associated lead times.

What does all of this information imply for demand for your products 3 months from now, 6 months from now?  For future pricing of your raw materials?  Do the implications change per geography? Per season?  Per product line or per customer class?

Does the fact that banks are accelerating repayment of bailout funds mean anything regarding interest rates? And do interest rates impact your procurement policies or demand for your products?

And what is the lead time associated with all of these potentially causal and leading indicators?

Most importantly, does your current process and technology platform allow you to study the impacts, understand the causality, plan for the impact with correct lead time? Are you having these conversations?

Our clients are talking about the implications of increased housing values on consumer spending and in what time frame. They are creating scenarios around different inflation trajectories, different employment rate scenarios and doing this within the context of different weather projections by geographic region. Are you equipped to have similar conversations on a weekly, monthly quarterly basis?

CPG and B2B manufacturing companies use leading indicators / causal factors like weather (temp. and precip. indexes), unemployment, birth rates, housing starts, and Nymex commodity spot prices to improve their forecasting and do so for cascading time frames. They are included in as additional inputs into forecasting process and used concurrently with the traditional historical inputs.

We recently had a good conversation with Amber Sally from Gartner. Among the topics discussed were her views on competitive differentiators in demand planning and forecasting – one was the ability to employ causal factors into your process.

Are you going to figure out how to corral the power of this competitive differentiator, or are you going to passively let your competition outflank you just as you are passively allowing external forces to impact your business without understanding the details of the how, why, where, and how much?

S&OP Success: As Much the Partner as the Technology

Here’s an all too familiar reminder of someone that had their holidays ruined by broken promises….

Small? Details?  Why are we writing about this? S&OP initiatives are based on business cases that typically highlight bottom line improvements that carry with them a lot of focus and attention.  And yet, many of these projects fail to ultimately deliver the promised improvements, Why?  There are many variables involved and not all the variables are equal.  There is one specific variable that we have seen that can invalidate the entire ROI and often is the least vetted variable of all.

Evaluating all the features of your future S&OP platform – including the company – that supports your business case is a big job. There are many factors to consider: business process perspectives to the skill sets of your team to the underlying capabilities that are most important to the competitive advantages you have in your market. A great deal of effort goes into initial vendor evaluations, product demos, and on-site demonstrations of the platform with your data. All this is absolutely necessary to make the proper selection of a platform that can and should have a bottom line impact on your business imperatives. However, is it enough?  Does this following scenario sound at all familiar?

After all of this due diligence, you’re feeling pretty good about the platform you’ve selected and are excited about getting the project started. Once the contract is signed, your vendor begins to talk about a slight start delay since they’re got to slot your project in with other projects with other clients. Once you have your kickoff meeting there is some murmuring of a “new understanding” of scope from the product vendor. As you discuss integration design, the vendor “discovers” new data feeds that were not accounted for during the proposal process. As your team gets a better understanding of the product and asks for some tailoring, they’re told that it will require a change request.  The schedule slips and costs go up….

All the due diligence on the platform, its match to your business, and the ROI business case is undermined by a vendor that can’t deliver on its promises. Finding a reputable partner that will stand by their commitments, even when things don’t turn out exactly as planned, is often one of the most important selection factors in separating successful projects from the 70%+ that fail.

The team at Demand Foresight is a group of S&OP SME’s, enterprise architects, and large enterprise company developers that have been in your shoes. We started a company that wanted to take a novel approach to avoid these all too “normal” software failures.  That’s why we came up with a one price, two-part guarantee to demonstrate our “skin in the game” in the spirit of an equally incented partner in your success. Our clients keep telling us how unique this approach is, but from our standpoint, there’s no other way!

Inventory Crisis: Santa’s Forecasting Software Deserves a Lump of Coal

‘Twas the week before Christmas and all thru the North Pole,
Every elf was slaving – his inventory to control!
The gadgets and toys were piled high on the sled,
But some seemed to be missing, so the I.T. guys were dead…
“How could this happen AGAIN,” they all moaned?
“I thought we upgraded – what do you mean, they postponed??”

They cursed their computers and questioned the stats:
“How could this be true – our forecasting software is bats!
We entered the numbers, the graphs, and the plans,
Yet still the result doesn’t meet the demands!”

Then Santa emerged with a large bag of coal.
“You’ve missed it AGAIN? But that wasn’t the goal!!”
Memories of Christmases past flew before him;
His thoughts about inventory grew more grim.

“We talked bout stats, we KNEW they were lame –
Last Christmas we failed, and they were to blame!
I thought we agreed to be bold and more clever –
I thought we banned stodgy old models forever!
We can’t be tied-down by inflexible apps,
Why we’re the North Pole – we’ve got presents to wrap!”

Once again the I.T. guys accepted their coal,
And returned to their desks for damage control.
“Next year will be different!” they resolutely exclaimed,
As they deleted the forecast that got Santa inflamed.
“Smarter software is out there, and we know what it’s called:
Demand Foresight, please help us to get it installed!”

As 2013 draws to a close, we at Demand Foresight hope that you’ve had a great year and look forward to an even better 2014. All the best to you and yours this holiday season!

Santa Claus Holding Finger to Mouth


Demand Forecasting Is More Than Technology

Demand Forecasting. It hurts me to say, it needs to be more than Technology.

We have recently been working with a terrific organization; they are in the steel business and located in the southeast of the U.S.  In my mind, they are terrific not only because they offer great products and service but they do so by operating the right way.  They focus on taking care of their people and depending on those people to focus on constantly improving operational processes that drive innovation.

Their focus on innovation is one reason we have gotten the opportunity to get to know them.  And it has reinforced some critical components necessary for successful demand forecasting and planning beyond technology.  Now don’t get me wrong, we are not suddenly becoming consultants that believe everything can be sorted by process design or strategy reviews; we still firmly believe that investing in an improved forecasting platform is the single fastest and proven way to measurably improve pre-tax financial performance. However, it is not all about technology – in order to capture the long term financial benefits and set the stage for continuous improvements, the technology upgrade needs to be part of a program that addresses process and accountability.

From the process point of view, the specifics of the process are not the emphasis of this conversation. You want to make sure that you take advantage of your new platform to improve the process – eliminate manual steps, reinforce workflow, and help support decision making. What’s more important is the focus on executing the process with discipline and collaboration. The discipline is directly related to measurement (nothing new to the thought that an organization will only execute what is measured).  However, what most companies fail to do is to use the improved technology to improve what they “can” measure.  For example, most companies are used to measuring accuracy at product family level or product lines.  However, no company actually makes or distributes a product family or product line. They make the actual individual products at specific locations for specific customers.  This is what we call the execution level and it represents the detail necessary to utilize the forecast to drive measurable improvement in the value chain.

In addition to improving measurement, it is also critical to improve collaboration.  With an improved platform, you will have the basis for inviting more participants into the process. Each of these new participants represents valuable sources of information for improving the forecast–Some examples? If not already actively involved, then sales and marketing need to be included with specific responsibilities.  Inventory managers have a significant role to play as does finance.  Then to really take advantage of your investment, think about how to extend your collaboration to include customers and vendors; then, perhaps your distributors and analysts.  The key is that the right technology platform can facilitate collaboration which allows for a much more accurate forecast.

The discipline and collaboration is greatly enhanced by the human accountability improvements.  As you have heard us emphasize in this blog and in our presentations, the single most important organizational move a company can make to reinforce improving forecast accuracy is to specifically designate a senior officer accountable for an accurate forecast.  Period.  Sorry, one more thing. Make sure part of their compensation is tied to the forecast accuracy. From our experience, ideally this is the most senior sales person in the organization. But we have seen it work well when the accountability resides within finance or operations (see collaboration above). The key is specific accountability at a senior level with compensation at risk.  All the other components of human performance are important – training, org design, skill sets etc.  However,  to set your organization up for long term and measurable success in forecasting, no other organizational improvement will drive more success.

And these are well worth the effort to put in place.  First you want to take advantage of your investment in new technology. And second, you want to deliver profit optimization for your company. And it takes more than technology – as much as that hurts me to say.

Doing what “is required”

“It is not enough that we do our best; sometimes we must do what is required.”

― Winston Churchill

I have been watching the Olympics with great interest; the achievements by so many athletes from so many countries have fulfilled every aspect of the Olympic dream.

In addition, it has been great to see so many different parts of London, a city I used to visit frequently in travelling back and forth to Dubai so there has been a certain nostalgia intertwined with the excitement of the competitions.

Which of course gets one thinking about the great characters of English history and as one is re-introduced to Winston Churchill, it becomes obvious that what he accomplished, and what he helped his country achieve, was dramatically more tremendous than even the recently concluded London Olympics.  And in reading through some of his quotes, the one I have included at the top of this blog really resonates with me. Continue reading