What is forecast value-add, and how can it be applied to organizations in a time of volatile and unpredictable demand? Eric Wilson, director of demand planning and S&OP with Tempur Sealy International, has some answers.
Forecast value-add (FVA) can be defined as the measuring of “any touch point in the forecasting process,” says Wilson. A company might start with a “naďve” forecast, which is revised each time the product in question is touched.
The exercise can prove especially valuable when companies are engaged in product segmentation. In the process, they can determine precisely how many resources to allot to various products, which can be tied to more accurate forecasts.
FVA can also serve as an effective sales-training tool. It can take into account such factors as seasonality, providing the sales team with regular input on the accuracy of its numbers.
Tempur Sealy International has been using FVA for just over five years. Prior to that, it would generate a statistical forecast, then provide sales with some feedback. “But we didn’t have input [as to whether] we were improving the forecast or not,” says Wilson. “We decided then to look at FVA.”
Today, the company is able to determine the impact of any number of inputs – including point-of-sale data, promotional planning and category details – on the forecast. It now has the ability to measure each input separately.
Forecasting is both a science and an art, says Wilson. Companies can employ standard algorithms to help generate the forecast, but it still takes a skilled practitioner to put the numbers together into a coherent form.
The biggest challenge associated with the implementation of FVA is change management. Sales might believe it was already providing accurate information. And it can take time to figure out which inputs are actually adding value. In addition, individuals within the company might initially be reluctant to share information across disciplines, fearing that they’ll be punished for creating an inaccurate forecast. But the bottom-line benefits of FVA make it well worth the effort, says Wilson.