Executive Briefings

Improving Forecast Accuracy: Every Little Bit Counts

Jeff Metersky, vice president of the Sales, Inventory and Operations Planning Practice at Chainalytics, explains how a new approach to benchmarking can help companies improve their forecast accuracy and why even small improvements make a big difference.

Understanding what future demand will be is the lifeblood of consumer packaged goods companies, says Metersky. "The better a company can get at that, the better it will be at customer service, at controlling costs and at profitability, so it is just core to any supply chain executive's business," he says.

Many companies use benchmarking as a tool to identify where they need to make improvements in forecasting, but benchmarking data is largely self-reported, which is a challenge, Metersky says. "There are a lot of inconsistencies with self-reported metrics because companies differ in the way they measure forecast accuracy. You can get a descriptive reading of where you stand in comparison to a peer group or a competitor but no insight on what to do if you are lagging."

Additionally, even companies in the same industry and same geography, serving the same customer base, have different supply chain or business profiles. "We need to find ways to do better apples-to-apples comparisons," he says.

To address this issue, Chainalytics created the Sales and Operations Variability Consortium (SOVC), which acts as an independent third party to standardize benchmark reporting. "We take in the usual historical shipment information and historical forecast accuracy information from participating companies, but at the same time we also capture the practices, policies, metrics and technologies they are using so we can tie these together to provide a basis for meaningful comparisons," Metersky says.

The SOVC benchmark looks at factors like product velocity, the way a company goes to market, its level of promotional activity, how many new products it introduces each year, the stability of demand and whether a company forecasts on a weekly or monthly basis, Metersky says. "So instead of having one benchmark, which is what you get in the existing market, we have created 1,600 benchmarks, which allows a company to really hone in and segment and develop strategies that are appropriate to the portion of its business it is benchmarking."

This is important because even small improvements in forecast accuracy have big benefits, he says. "You will never know exactly what demand will materialize tomorrow, but the more certain you are, the less inventory you have to hold and the less working capital you have to invest; the more certain you are about what orders are coming in, the better able you will be to fulfill those orders without delay."

Moreover, he says, any improvement in forecast accuracy falls right to the bottom line, "so it clearly is worth the journey."

To view video in its entirety, click here


Keywords supply chain, supply chain management, supply chain management scm, inventory management, value chain, inventory control, logistics & supply chain, supply chain solutions, supply chain planning, supply chain services

Understanding what future demand will be is the lifeblood of consumer packaged goods companies, says Metersky. "The better a company can get at that, the better it will be at customer service, at controlling costs and at profitability, so it is just core to any supply chain executive's business," he says.

Many companies use benchmarking as a tool to identify where they need to make improvements in forecasting, but benchmarking data is largely self-reported, which is a challenge, Metersky says. "There are a lot of inconsistencies with self-reported metrics because companies differ in the way they measure forecast accuracy. You can get a descriptive reading of where you stand in comparison to a peer group or a competitor but no insight on what to do if you are lagging."

Additionally, even companies in the same industry and same geography, serving the same customer base, have different supply chain or business profiles. "We need to find ways to do better apples-to-apples comparisons," he says.

To address this issue, Chainalytics created the Sales and Operations Variability Consortium (SOVC), which acts as an independent third party to standardize benchmark reporting. "We take in the usual historical shipment information and historical forecast accuracy information from participating companies, but at the same time we also capture the practices, policies, metrics and technologies they are using so we can tie these together to provide a basis for meaningful comparisons," Metersky says.

The SOVC benchmark looks at factors like product velocity, the way a company goes to market, its level of promotional activity, how many new products it introduces each year, the stability of demand and whether a company forecasts on a weekly or monthly basis, Metersky says. "So instead of having one benchmark, which is what you get in the existing market, we have created 1,600 benchmarks, which allows a company to really hone in and segment and develop strategies that are appropriate to the portion of its business it is benchmarking."

This is important because even small improvements in forecast accuracy have big benefits, he says. "You will never know exactly what demand will materialize tomorrow, but the more certain you are, the less inventory you have to hold and the less working capital you have to invest; the more certain you are about what orders are coming in, the better able you will be to fulfill those orders without delay."

Moreover, he says, any improvement in forecast accuracy falls right to the bottom line, "so it clearly is worth the journey."

To view video in its entirety, click here


Keywords supply chain, supply chain management, supply chain management scm, inventory management, value chain, inventory control, logistics & supply chain, supply chain solutions, supply chain planning, supply chain services