Forecast Errors
Volume 2, Issue 11, March 16, 2015
A forecast error is the difference between the actual and predicted value. The consequences are expensive inefficiencies that can be resolved with lean manufacturing technology.
CPG Demand Driven Supply Chain Reduce Forecast Errors
The Grocery Manufacturers Association (GMA) and Food Marketing Institute (FMI) joined together as the Trading Partner Alliance (TPA) and hosted their annual Supply Chain Conference last month in Phoenix. Increasingly CPG companies quickly optimize supply chains with demand-driven cloud-based solutions. The Trading Partner Alliance (TPA) is a joint industry affairs/industry relations leadership group that was formed by GMA and FMI in January 2009. The TPA exists to develop a shared retailer-manufacturer agenda on supply chain efficiency issues, the application of information technology, the adoption of environmentally-friendly business practices, and other issues. Inventory velocity in the CPG environment is vital. Read more.
Supply Chain Professionals Realize Past Sales a Poor Predictor of Future Sales
Joe Bellini in the Network Effect shared that mathematicians have traditionally approached forecasting based on various time series and curve fitting techniques which create a forecast based on data, such as prior sales history, drawing on several years of data to provide insights into predictable seasonal patterns. Supply chain professionals have also come to the realization that past sales can be a poor predictor of future sales, especially when considering the variations associated with capabilities like distributed order management. Yet with today’s rapid pace of new product introduction and shortened product life cycles, having more than an 18-month sales history might be considered a luxury. Manufacturers must move away from forecast driven business models. Read more.
For Chemicals industry the average of forecast error is 36%.
The current environment of uncertain GDP growth and shifting market dynamics presents challenges for many chemical companies, it also offers opportunities to retool their business models. Future growth of the chemicals industry will be driven by developing markets, where gains are likely to range from 6 percent to 10 percent, compared with 2 percent to 3 percent in developed economies. Most global chemical companies have found themselves losing in head-to-head competition with local players while trying hard to tap into this booming business. PwC recently completed a survey covering nearly 2,000 C-suite executive-level respondents. Ninety-five percent of respondents said they foresee digital technology innovation at their companies over the next three years, with 50% expecting breakthrough or radical advances. Chemical companies have invested billions in automation and information technologies and moving forward, cannot afford to be passive. Read more.
Lean Six Sigma Reduces Forecast Errors
Any company desiring to save money through increased efficiency can benefit from the Lean Six Sigma methodology, a set of process improvement-focused practices that help companies organize, analyze, and improve their overall business operation. By embracing the cultural methodology, manufacturers are making a total commitment to continuous improvement and product workflow optimization, with the ultimate objective of being a world-class company in every regard. Forecast errors are eliminated by streamlining production and eliminating non-value added processes. This implementation results in increased efficiency, higher quality output, and better customer service. Read More.
Move from forecast errors to demand driven accuracy:
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