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.