Keep the noise down please
In the Williams household, the amount of bread we consume is stable and predictable. Around Bank Holidays, we stock up beforehand. But even that rarely changes.
Historical data indicates the same pattern applies to most households. UK demand for bread is stable, predictable and easy to forecast. Yet businesses feeding this demand seem to struggle to forecast it. The more remote they are from the market, the more difficult it is.
Why is sales forecasting such a nightmare? Privately, supply chain directors will admit demand for most products is predictable. It may be going up, down, or through seasons, but consumers are apparently boring buyers! It is the supply chain behind them that injects 'noise' into the demand profiles.
When a supplier procures, makes, stores, or ships more than the demand, because it is more economical, he injects 'noise' into the chain. The next supplier receives distorted demand compared to the true market. This also happens when you decide the forecast you have is not good enough, "but not to worry - you know what will be sold". You have second-guessed demand and injected more noise into the system. Maybe you did know better, maybe not. But others will never understand why the forecast started as x and is now y. So what chance do they stand of improving it next time?
Stop blaming customers, and the so-called erratic consumer demand and start looking at the sources of the 'noise' in the supply chain. This will do wonders for your ability to improve your forecast. Remove some of the 'noise' through better planning and it will become even easier. I have seen forecast accuracy jumping up significantly, giving businesses the opportunity to reduce buffer stocks. But there was no miracle or magical formulae involved. Just rigorous process improvements.
So, if you think that forecasting is now even trickier, remember that a downward trend is just another trend. You can forecast it if you take the time to understand it.
Hugh Williams is founder of supply chain planning specialist Hughenden.
