Considering External Data in Demand Planning
When you make business decisions, you are almost always looking forward. You’re thinking about the future. This means you’re thinking about forecasting and planning. And what this really all means, is that you are thinking about demand.
When you make critical decisions around demand, you need information from disparate data sources about your market, your customers, the economy, the weather, your costs, your profit margins, what your competitors are doing, your ability to stimulate demand, your company’s capacity to meet the expected demand, among other things.
When thinking about all these factors, and when looking into the future to make these decisions and achieve the desired outcomes, it seems obvious that we have a problem. The data that has historically fed the forecast (past orders, past shipments, last month’s prices) is going to be less than adequate.
The fact of the matter is that the most important business decisions, and the fundamental practice of forecasting itself, are based primarily on backward-looking, after-the-fact, inward-looking data. This is why it’s no mystery that a majority of companies are dealing with 50% or greater error at the execution level of forecasting measured on an absolute basis. With this in mind, can you think of a better way to control business costs than to reduce forecasting error?
Besides improving the forecast platform, improved information would be the single most important tool for reducing forecasting error. If you could obtain more direct feedback from your customers (what they’re selling, what they have in inventory, how their latest promotion was performing) would that help your forecasting and planning? If your business is seasonal, would more accurate weather information help in your decision-making? If you supplied the residential construction market, would daily updates on housing starts have an impact? Does unemployment impact the consumption of high-end craft beers, and does this vary by region? Does overcapacity in the market among your competitors impact your profit margins? Do more than two or three external factors impact demand for your product at the same time?
Yup – we are going to have to talk more about this one. External data quality and timeliness, and then managing that information to optimize your decisions, will be the next frontier in business management. The good news is that Demand Foresight believes we have the platform, and there is now a great proliferation of more accurate information and competitive data markets available for more industries. Any input, experiences, examples, questions and critiques will be welcome.
What our forecasting and planning software can do.