Demand Planning and Forecasting
We all know that improving our demand planning and forecasting processes integrated with an effective IBP process can have a significant impact upon strategic execution within our organisations. However even the word ‘forecasting’ is a blocker to improvement. There are only two places we tend to use the forecasting word; one is the weather and the other is demand. I believe that we use it in these two places for the same reason – “it lets us off the hook”, “nobody can forecast the weather can they” and “nobody can forecast demand can they”, “anyway forecasts are always wrong and so what’s the point”. In other words, the very word allows us to perpetuate the myth that forecasting is the art of the impossible.
It’s funny but if I was to ask any of you “are you going on holiday this year”, I doubt very much that the answer that I would get would be “yes I’m forecasting to do that”. I think that you would more likely respond “yes I’m planning to do that”. However just like demand, whether you go on holiday this year is not entirely in your hands, god forbid but if you lost your job, had some family crisis or got to the airport to find that the airline had gone bust! (not an unlikely scenario) then you wouldn’t go, but even though it is not entirely in your control you are prepared to use the ‘P’ word and not the ‘F’ word when it comes to your holiday, so why? I believe that the answer is simple, it is because you want to go on holiday and so you are prepared to plan for it not forecast it. In other words, the first step to improving the demand forecasting process is despite it not being entirely in your hands, start to demand plan and not forecast. You may say that is just semantics, which it might be, but it gets over the first psychological barrier. That demand forecasting is the art of the impossible and not the art of the possible. Demand happens because of the Sales and Marketing activities that we carry out and so the Demand Plan should be linked to those activities and assumptions.
It is interesting to observe what the Russians do on May Day every year; they ‘seed’ the cloud because they are not prepared to forecast that it won’t rain on my parade, they plan for it not to rain on my parade!