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.

Forecast to Cut Through Demand Driven Jargon in 2012

As we get ready to start what is sure to be an outstanding 2012, one of the keys to sustained success will be getting back to and focusing on the basics.  One of the basics is clarity and use of language to highlight what is really important.  For example, there are a lot of words and phrases about demand driving supply chains …

Demand Driven? Demand Driven Value Net? Customer Driven Value Network?

The jargon is constantly changing with new theories and practices unveiled yearly at conferences throughout the country. We understand that these organizations and bodies of expertise are profit reliant and must continually refresh and repackage their message to remain relevant.

But what are they really talking about?

Matching supply and demand – in a way where you and your customers and your vendors mutually benefit (improving the value chain). While easy to say, it’s not necessarily easy to execute with accuracy and discipline, thus the over-complication of supply chain terminology.

Listen to the conversations you’re having with your colleagues. Are you discussing the true business problem? Or skirting the issue by giving each other the run around trying to impress with multi-syllabic words and semantics? If it’s the latter, try looking at what’s at the root of these lengthy discussions.

Forecast error is a constant theme through these long winded phrases. Forecast more accurately and you’ll have an easier time with the rest of your supply chain process. Whether you’re referring to Gartner research circa 1999 or 2009, you’ll be told to improve forecast accuracy for measurably better supply chain performance.

Not only will 25% less error simplify your conversations, it’s also the shortest route to the shortest word your company cares about. Profit.

So for the record, we are forecasting a great 2012.  Happy New Year!


Process Redesign – Do it right or go home.

When approached without a clear understanding of the technological possibilities and a relevant examination of the organizational structure and policies (i.e pay)  supporting it, Business Process Redesign is a complete waste of time.

In fact, I will go so far as to argue it is a destruction of shareholder value to invest time, human resources and actual cash in pursuit of improvements that will be minimized and/or never realized.

So what are the risks of the so-called “People, Process, Technology” approach?

  1. You can only contribute your process requirements based on what you know, but you can’t know the possibilities inherent in technology platforms until you’ve explored them
  2. You might design a process that only stays relevant for a year rather than 5 years and/or necessitates expensive upgrades, training and consulting fees with every step
  3. You might end up paying people to perform the old process, not the new process
  4. Your technology may require costly customizations or “work-arounds” to manipulate data outside of system support in order to support the new process


Say your current process involved 4 or 5 steps – it begins with a query to get historical data, extracting that data to a forecasting engine – something like excel or Demantra (no real difference), then running the model, then organizing the output into a useable format, running a series of reality meetings with Sales, Marketing & Operations and then finalizing the execution forecast.

Now, given that background and experience, in a typical process redesign, you would enter a room with big whiteboards or brown paper sheeting taped up and most likely a consultant (internal or external) standing at the front of the room saying – please – give me your requirements so we can design a process.  What are you going to pull from in order to provide requirements?  Your experience – what you know.  Which means in effect you will be paving over cow paths – which might be charming in Verona but not the basis for delivering competitive differentiation for your company.

Perhaps even more frustrating is say that you are able to think out of the box and come up with a truly radical process that cuts out 4 of the 6 steps and if properly executed would increase accuracy by 10% and reduce cycle time by 75% and help improve order fill rates from 90 to 99%?  And then you go out and look for a technical platform only to find there is no technology to support your process? Can you say frustrating loud enough?

So what is the right way?

Technology – Process – People

A comprehensive, holistic approach based on the principle that Technology should support Business Process, and Business Process should exploit the capabilities Technology can provide – Davenport & Short dubbed this recursive view of Technology & Process Redesign “the New Industrial Engineering” — Rather than lay out a step by step detailed process (proscriptive process design) you outline specific outcomes for the project (outcome based process design). 

This would include:

  1. Identifying what is wrong with the current process,
  2. Creating a general vision as to where you think the current process could improve,
  3. Setting specific measurable goals for improvement – including areas to focus investment and amount or degree of improvement desired.
  4. Considering your pathway toward maturity – how much will it cost to improve down the line?


Within this framework, you can then invite technology providers in for conversations and focus on finding a partner with a technology that can provide measurable performance improvements as well as a platform that is flexible so that it can stay relevant for this process as well as future required changes as your business continues to grow and evolve.

Once you have a partner chosen based on technological prowess, flexibility, industry knowledge and compatibility, you can then engage in detailed process design in tight partnership with the technical platform you have chosen. You can then also do a review of compensation structures and organizational design to ensure these will be flexible in supporting new process and performance expectations.

[Quick word of warning:  This does fly in the face of the normal RFP process where a company says, “Hey, we want to do something but we are not going to share the specific details or outcomes we are going to measure nor any of our criteria for success.” What ensues within the responders  is a process of guesswork, misdirection, outrageous claims and leverage which, in many cases isn’t entirely dissimilar from a season of “Survivor.” And yet, after it all, many executives end up choosing based on faulty assumptions about long-term cost savings and NOT business outcomes.]

There has been specific research done on this by a few groups and the statistics are frightening:

70% of process redesign projects fail to deliver on the business case and the budget. Only 30% actually hit the minimum marks!!

The holistic approach, however, produced strikingly different results.

  1. 50% reduction in total project time,
  2. 35% reduction in total project cost,
  3. 70% improvement in technology uptake
  4. 60% improvement in attaining business case


This really seems like a no-brainer but yet, as noted at the start, people are still approaching corporate performance improvement like it’s 1985.

How can we evolve this conversation beyond old paradigms? What can be done to help drive efforts to improve corporate performance such that our companies not only survive but thrive?

More about our forecasting and planning software.

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.

THE BEST-LAID PLANS How Improved Forecasting Can Save the Free World

Of the many lessons that recent global unrest has to teach us, few have consequences as profound for American business as the fragility of the global supply chain. Indeed, the last decade has seen the emergence of a remarkable web of vendors and customers stretching to every corner of the earth. It’s an impressive infrastructure, borne of the stunning advances of the digital age, but its diversity comes with a cost made all too plain by catastrophe: when one supplier falls through, an entire production line can collapse like dominoes. After the recent events in Japan, for instance, an industry giant like Toyota is still operating at half capacity, not because its factories were affected by the quake, but because those factories depended too heavily on parts manufacturers deep in affected territories.

We ignore this lesson at our peril, as the companies that comprise the heart of our economy are part of this same web, ever subject to the whims of fortune. A setback like this can require months, even years, to fully recover, and in today’s market, there’s simply not time. While GM and Ford have seen their market share grow unexpectedly because of Toyota’s troubles, that increase isn’t a given. No external factor offers more potential pitfalls than rapidly changing market conditions, and increasingly, these hinge on external events like political unrest, weather cycles, or catastrophes. And no solution addresses these changes more effectively than building versatile, dynamic supply chains.

Sounds simple enough, right? Still, creating a system that can respond to both the Consumer Price Index and the Richter scale means rethinking our assumptions about planning. A raft of research from AMR and Stanford Business School suggests that accurate forecasting is the most effective way to improve supply chain performance, and by extension, increase profitability. And this requires that companies have a greater ability to collect, understand and use the enormous amount of available data in decision making. And let’s not forget the role of government policy, and its impact on market conditions in areas such as interest rates, currency strength and inflation/stagflation. Companies must take into account everything from consumer preferences to the political and environmental stability of supplier countries, and have fallback plans that are plug-and-play.

Apple, for example, reacted to unexpected demand for its iPad 2 with admirable ease, even when circumstances threatened to worsen the usual rollout shortages. The tablet went on sale the day of the Japan quake, and its far-flung supply chain calls on parts makers including Japanese Toshiba, whose NAND chip production was affected by the tsunami. Apple, however, was unflappably prepared. It simply shifted its sourcing to South Korea and other regions, where semiconductors are plentiful and unaffected by Japanese turbulence. Conversely, other players in the tablet market like RIM were caught flat-footed, having failed to match the foresight and flexibility of Apple’s COO and Jedi Master Steve Cook.

In a volatile market where companies must fight for every iota of their share, the difference between Apple and RIM can have outsized consequences—RIM’s misplay helped send its shares tumbling by over 10%. By now, asking corporate honchos to be more like their counterparts at Apple is almost a cliché, but the proof is in the bottom line. As businesses hone their forecasting strengths, they develop the adaptability to execute on strategies for investment and future growth, and sustain short-term competitive advantages. Of course, no one should ignore traditional planning indicators such as debt-to-GDP ratio and interest rates. In the coming decade, smart forecasting will be the single greatest determinant in the ability for American companies to thrive where others founder.



Gene Tanski is CEO of Demand Foresight, a firm whose forecasting software increases profitability and supply chain performance for its global client base of manufacturers and distributors.