June, for many people, can be a wonderful month. The weather has warmed up, kids are out of school and many people begin to take vacations. Even if you aren’t on vacation, chances are that a troublesome employee, peer or even supervisor is out of the office—and that offers a welcome reprieve as well.
But June isn’t always well received. For instance, in a recent conversation, a manufacturing executive explained why he has come to dread the month of June.
Actually, there are two reasons. The first is that the company’s fiscal year ends June 30th, and the results in recent years haven’t been as good as those of years past. The second reason is that the company is also finishing its six month forecast, which is a troublesome process. Many of you are probably now thinking that the company’s disappointing revenue is effected by its poor forecasting capabilities—and that’s arguably true to a certain extent.
But what about you? Are you at work on your company’s forecast, and, if so, how is it going? Is it a smooth and well thought-out process?
The reality is that for many organizations, forecasting doesn’t entail much more than looking at historical numbers, and then having those numbers tweaked by someone in sales and marketing. While that approach may have been marginally sufficient for some in the past, it hardly seems like a viable approach now considering the U.S. economy.
The problem, of course, is that inaccurate forecasting often leads to shortages, excess inventory, and, in some cases, even a pendulum swing from one to the other. The consequence of not being able to meet demand is unhappy—and potentially, lost--customers. On the other hand, carrying excess buffer results in unnecessary cost. The goal then is to become more responsive and demand-driven so the organization can more accurately meet demand and improve customer service while simultaneously holding less inventory.
Improving the forecast obviously is a complex initiative. But one critical first step to improving that capability is to collaborate with customers and suppliers. Unless your customer base is very small, it’s unlikely that you will achieve a high level of collaboration with all your customers. However, that’s not necessarily the goal.
Instead, the real value comes from first identifying customers that represent the bulk of your business, exhibit the largest or most frequent changes in demand, and provide you with the most profit. Demand from those customers has the most impact on your business, so those customers are the ones that it’s vital to collaborate with and gain their forecasts as well--assuming they are willing to participate. That assumption may be a topic for another time.
Anyway, how accurate is your forecast? Do you base your forecast on input from your customers?