Business cases, ROI, improved performance – all are nifty catch phrases used to justify investments in people, equipment and software. But what is the value? Where does the measurable improvement come from?
The obvious answer is: in inventory and/or inventory turns and their associated impact on working capital. I think everyone will agree that an improvement in forecasting will improve the amount of inventory carried. But this doesn’t begin to fully describe the size of the opportunity. Improved execution-level forecasting is the gift that keeps on giving.
More stuff that customers want
An improvement in execution-level forecasting empowers you to improve the makeup of that inventory, thereby increasing customer satisfaction. In addition, it creates the chance to address issues such as perishability, which has significant performance implications in the food and beverage industry; and old or slow-moving inventory, which can greatly impact the cost line of industries like high-tech and fashion. Issues like these almost bankrupted Cisco back in the early 2000s.
Greater production efficiency
Taken further, improvements in execution-level forecasting also allow companies to address production efficiencies by optimizing the mix and duration of each run for manufacturers, as well as purchase orders for distributors. Reduced changeovers, lead times and overtime are other ways that improved forecasting pays off.
Optimise shelf space for revenue
You can also drill down another level to the management of your bill of materials (BOM) and work in progress (WIP). A perfect production plan is useless if the materials or subassemblies are not where they’re needed, when they’re needed.
If your company deals with big-box retailers and their service level agreements, improved execution-level forecasting gives you the best chance to generate the most revenue possible from available shelf space without running the risk of a large end-of-season return or write-off.
And this does not even begin to explore the opportunities for improving the forecasting and demand planning process and the associated efficiency improvements, or the improvement potential in the area of effective marketing spend.
These results are based on a history of obtaining 1-, 2- or maybe 5% improvement in forecasting — often at levels higher than execution level, such as brand family or category. Imagine the opportunities if the execution level improved by 25% or more.