Forecasting Software to Increase Your ROI | Demand Foresight

Happy New Year!  2013 looks to bring a whole host of new challenges and opportunities for businesses to differentiate themselves and to thrive in an increasingly more competitive marketplace – just like last year.  Brings to mind the old quote from Jean-Baptiste Alphonse Karr (although probably more familiar to people who are fans of Kenny Chesney or Jon Bon Jovi) – the more things change, the more they stay the same.

Using that quote as an incredibly clever transition device, whatever the challenges and opportunities before us, there are a few key basic truths and one of the them is that as business people we have a fiduciary responsibility to maximize the value of our businesses over time and that is often measured through increasing cash flow and pre-tax profitability (net profitability has become a much more complex conversation).

Therefore, to start the year, I thought we would revisit and refine the value proposition of dramatically reducing your forecasting error.  All of the research supports that in today’s operating environment, improved forecasting is the number one option available, from an operational S&OP point of view, to most effectively, measurably and quickly improve your value chain performance and therefore improve cash flow, return on capital and pre-tax profitability.

How specifically can improved forecasting improve value chain performance? Not necessarily in order of importance or impact, improved forecasting should allow you to

  1. Increase revenues because:
    • Sales focus on their most profitable customers and products
    • Marketing more effectively supports sales and brand strategies
    • Customer service increases because there are less out-of-stocks
  2. Improve utilization of working capital because:
    • Inventories are reduced closer to what is needed
    • Raw materials, components and finished goods are purchased more in line with optimized production or deployment plans
    • Order to cash cycle times are greatly reduced
  3. Improve Return on Capital Employed because greater accuracy allows for more effective:
    • Master Scheduling of plant and materials (and personnel but often this is not included in capital calculation)
    • Constrained Planning
    • New asset / capital investment

These represent what can be improved – no doubt you are asking to what degree can I improve my returns on investment and capital employed and cash flow and pre-tax profitability.

Results are obviously dependent on the exact situation within each company however as a general rule of thumb, our experience shows that a 25% reduction in forecast error translates into a minimum 5% improvement in pre-tax profitability.

However, perhaps more compelling, independent research shows equal or greater impacts.


Dr. Hau Lee is the Thoma Professor of Operations, Information, and Technology at Stanford University; Co-director of The Stanford Global Supply Chain Management Forum; Director of Managing Your Supply Chain for Global Competitiveness Executive Program.

Given Dr. Lee’s long term research and cooperation with client companies, the impact of improving forecasting and focusing on demand drivers is significant.

“Distorted information from one end of a supply chain to the other can lead to tremendous inefficiencies: excessive inventory investment, poor customer service, lost revenues, misguided capacity plans, inactive transportation, and missed production schedules.”

 “I have already seen some companies using new software tools to manage their businesses based on demand, with results ranging between 50% and 100% in net profit increases, which in turn can easily be translated into enormous increases in shareholder and market values.”

Dr. John T. (Tom) Mentzer was the Harry J. and Vivienne R. Bruce Chair of Excellence in Business in the Department of Marketing, Logistics and Transportation at the University of Tennessee. He was a prolific researcher and author with 5 books on value chain excellence and competitive differentiation not to mention hundreds of articles to his name.

Dr. Mentzer extended his research, through the help of many colleagues and collaborators, to the measurable on a company’s performance. The single most clarifying result of improved forecasting highlight by Dr. Mentzer:

An increase of shareholder value of 15% or more!

Lastly, we refer to the Gartner Group which includes the recently merged business/supply chain analysts from AMR Research. There are a host of strong practitioners such as Noha Tohamy, Tim Payne, Mike Griswold, Dennis Gaughin, and Steve Steuterman just to name a few. Since January 2011 they have published a large number of research papers and articles that highlight the impact of improved demand forecasting. Their cumulative research has pointed to some significant findings.

Gartner’s measurable impacts of improved forecasting and demand planning:

  • 1% to 3% revenue increases
  • 15% to 30% inventory reductions
  • 20% to 30% order fill rate increases (Demand Foresight note – important to do 2 and 3 simultaneously)
  • 10% to 15% decreases in obsolete inventory
  • 3% to 5% increases in gross margin

Do you have an aggressive revenue, margin, cash flow and profitability plan for 2013 and/or for a number of years ahead? Are you mixing it up with aggressive and creative competition? Trying to differentiate your company and yourself?

I hope that as we kick off 2013 and all the possibilities and potentials still lie in front of us, you will take to heart that one of the most powerful investments you can make (and should make given fiduciary responsibility) that will have an immediate and long term positive impact on your performance (intentionally left blank – your company? Yours?)  is the investment in dramatically improving forecasting accuracy.

Looking forward to the conversations that are coming up.


Interpreting market data for use in demand forecasting and planning

Rewind to just a few days ago – January 19, 2012. “Housing Starts Rise 4.4%,” reported National Mortgage Professional magazine. Meanwhile, Bloomberg takes a different stance reporting “U.S. Housing Starts Drop 4.1%, Worse Than Forecast.“ When you dig deeper into the articles you’ll find each of sources were actually reporting on the same data but  with the sensationalist headline most appealing to their readers.

Depending on whether your company and team operates with a bullish or bearish outlook, the changes made to your forecast  based on information such as the above might do more damage than good. Just as the authors of these articles did, everyone from supply chain analysts all the way up the the executive team can put very differing spins on the same numbers.  Yet despite the many ways of interpreting the data there can only be one numerical outcome.

If not housing starts, which is the market data that impacts your forecast? From where are you gathering it? How are you integrating these externalities to improve your forecast?

Is it delivering results?

For New Belgium Brewing, Demand Foresight imported unemployment statistics. For Evenflo, it was birth rates. Realizing they weren’t operating in a vacuum and integrating market information these companies made production profitable and  edged the competition by saving in saved themselves costs still being incurred by their competitors.

News: Demand Foresight launches Platform for Growth and S&OP Maturity

Denver,CO – (January 26, 2012) – Demand Foresight today announced a Sales and Operations Planning software platform for midsize manufacturers, distributors and consumer packaged goods companies to build and mature their supply chain and S&OP processes while reducing forecast error by 25%. The Platform for Growth is built to give growing companies the flexibility and scalability to adapt as their business requirements change, supporting each company’s unique methodologies and approach.

According to Tenneco Packaging Corporation Master Scheduler Teri Metzer,“[Demand Foresight] understands my business and its needs. The programming is built to support the business, rather than changing the business to fit a pre-established computer model.” Demand Foresight provides personalized solutions that are relevant to its users, now. Clients only buy modules that serve their needs instead of being forced to purchase a license for an entire suite and then pay a second time to implement the individual modules.

Available modules for forecasting and planning that comprise the S&OP software platform are:

- Demand Forecasting

- Inventory Planning

- Materials Requirements Planning (MRP)

- Distribution Requirements Planning (DRP)

- Freight Reporting

- Purchase Planning

- Deployment Planning

- Load Building

- Market Plan Tracker

- Capacity to Promise

- Pricing


About Demand Foresight Software

Based on the premise that reducing forecasting error is the single most important investment to improve supply chain performance, Demand Foresight’s Demand forecasting and planning software sets new standards in reducing errors and increasing profitability for manufacturers and distributors. Demand Foresight’s advanced, next-generation forecasting engine works within existing IT environments, and has saved clients billions of dollars through improved and measurable business decision-making. Product performance is backed by the strongest guarantee in the software industry: clients will achieve at least 25% reduction in forecasting error and be completely satisfied or get their money back. For more information, please visit

Foresight CEO Gene Tanski on “Disruptions In the Global Supply Chain”

Foresight CEO Gene Tanski is quoted extensively this quarter’s Supply and Demand Chain eBook cover story, “Disruptions In the Global Supply Chain” Follow the link for the full story.

Industry Trends – Beer Distribution and Improving Profit Performance

Beer Distribution is an interesting business: High margin, protected by regulation that has traditionally limited most forms of competition, which leads to an overall lack of incentive to innovate technologically.

Nevertheless, despite the lack of innovation incentives there are some activities occurring that signal the status quo may be changing a little bit; for example, the recent foray of Berkshire tossed into the mix through the purchase of a couple of distributors.

If the current dynamic were to change, for whatever reason, forecasting would be one area that would allow distributors to rapidly improve – even advance – their bottom line performance outcomes.  Currently, on average, there is not a lot of focus on forecasting. Basic practices involve sales people “working” their on- and off-premise customers, while the inventory people make sure they keep enough stock on hand to ensure customer order fulfillment is met. Inventory managers look for opportunities to take advantage of strategically ordering from suppliers that game prices increases, etc.

A heightened focus on improving forecasting and ordering would allow distributors to lower working capital invested in inventory, while maintaining and/or improving customer service.

Customer service could improve in a number of ways; better order fulfillment being the most basic upgrade. On the more advanced side of the equation; distributors could work together with bars and liquor stores to make sure the products stocked, or on offer, respond and adapt to seasonal changes, trends, pricing, promotions, and holidays – making the distributor a value-added supplier.

In turn, the end merchant will become an even more valued customer by providing a more accurate forecast to their suppliers. This helps distributors and their supply chains become more efficient. Ultimately, this virtuous cycle helps set the distributor apart as a better supply partner – making it one that beer manufacturers will want to work with and which has the capacity to make a product successful in a new market.  This allows the distributor to negotiate more favorable terms with suppliers, thereby increasing margin performance. Everyone benefits.

Improving the forecast model will require improvements in technology and process systems – something that owners will have to support. Since distribution sales people are singularly focused on driving volume and taking care of their customers, they do not take kindly to activities such as supply chain forecasting. But their input is critical in order to achieve a “big picture” point of view that will help the entire company. When forecasting is tied directly to how it will help sales people earn more money (working for a higher margin distributor), a critical component of improving forecasting will be realized.