Analyst Insight: The past two years have been uniquely difficult for most consumer packaged goods companies. The economy and poor consumer confidence have made even the best-managed, best-run companies feel like they were on a sinking ship. An issue for most companies as the economy recovers is what to do with the historical data from those bad times going forward. How can companies budget, forecast and plan their business when the historical data is approximately worthless?

-Bruce Tompkins, executive director of Tompkins Supply Chain Consortium

The answer to all questions about data from the last two years and how it should be used is: It depends. Since historical information is used for a variety of purposes, companies need to look at each case and make a decision as to whether or not the data holds any promise for helping understand the present. In the end, some may decide that the information is completely without value.

A survey recently completed by the Tompkins Supply Chain Consortium examines the topic of uncertainty and many of the survey findings apply to the discussion at hand. First, the survey found that supply chain leaders are more uncertain about the future right now than they were one or two years ago. The primary reason for this is leaders know that the last two years were an anomaly, and therefore, the path forward is a mystery. All the mathematical models in the world cannot make the historical data of the last two years add up to predict the future.

The survey also found that the most uncertainty exists in the area of planning, followed by sourcing and sales and customer service. Companies are uncertain about the output from their planning models. They are concerned about to whom and how they are sourcing products. And they are uncertain about sales volumes. All of these uncertainties point to a lack of historical information that is usually relied upon to predict the future. For supply chain personnel, this is a huge challenge, as the very foundations of an efficient supply chain are predictability and standardized processes, which lead to sound execution.

Looking at the role that historical data plays in areas such as budgeting, forecasting, business and financial planning, inventory management, manufacturing, sourcing, and sales and marketing, companies have to be concerned with how to develop an accurate forecast.

The Outlook

If using historical data for future planning is not the answer, what is? There are only two ways to fix this problem in 2011. One way is to become less dependent on historical data and get closer to the consumer. Through a closer relationship with the consumer, companies can obtain real-time demand information, as well as a better understanding of how to move forward with planning. The second requirement is to become highly flexible while remaining efficient so that reacting to changes becomes the rule and not the exception.