Forecast Errors
Volume I, Issue 1, November 17, 2014
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.
Forecast Errors Lead to Mistrust in the Supply Chain
Building trust in supply chain is essential. Lack of collaboration is often the cornerstone of conflicts, blame, and mistrust between a manufacturer and suppliers. These communication breakdowns lead to finger-pointing when forecast errors and disputes arise. The manufacturer contends the supplier did not acknowledge the material purchase orders or ship on-time as promised. The supplier argues that the purchase order was not received or duplicated or rejected or went missing-in-action. Accusations result in ill-will, lost productivity, resentment, poor relationships, and bad customer service. Cost-effective supply chain collaboration between manufacturer and suppliers is paramount. Without that constraint addressed, all other benefits are pointless. Cost-effective collaboration often starts with electronic Kanban. Read more here
Forecast Errors Have a Cost
In a recent issue of Financial Director, editorial contributors Paul Dennis and Peter Young, suggested if there is one thing about predicting the future that always comes true, it's that everyone, from time to time, gets things wrong. The same applies to financial forecasts. A whole host of unpredictable factors can affect the accuracy of the financial planning and analysis (FP&A) team and alter the whole strategy or direction of the company. The article augurs that what separates best-in-class companies from those that struggle with accuracy is how they root out (and learn from) forecasting errors. Read more here.
Forecast Errors Require a Process Review
Just published in Academic Journals is comprehensive research about demand forecasting process evaluation. Fifteen Brazilian companies were extensively examined including the critical impacts of forecast errors. The four dimensions of analysis were functional integration, application, system and forecasting errors, and the findings were that only 35% met satisfactory levels. When two-thirds of these participants are at unsatisfactory levels there is a mandatory process review in order. The authors suggest that forecasting demand is of fundamental importance to the competitiveness of a productive system. Answering questions such as “how much” “when” and “what” to produce and buy, guides professionals from various segments to improve their forecasting techniques. Read more here
Forecast Errors Managing Unpredictable Supply Chain Disruptions
“From Superstorms to Factory Fires: Managing Unpredictable Supply Chain Disruptions,” was a feature article recently published in Harvard Business Review by David Simchi-Levi, William Schmidt, and Yehua Wei. They suggested that leaders using traditional risk-management techniques and simple heuristics (dollar amount spent at a site, for instance) often end up focusing exclusively on the so-called strategic suppliers for whom expenditures are very high and whose parts are deemed crucial to product differentiation, and overlooking the risks associated with low-cost, commodity suppliers. As a result, managers take the wrong actions, waste resources, and leave the organization exposed to hidden risk. There are effective models which allow companies to identify, manage, and reduce exposure to supply chain risks. Read more here
Move from forecast errors to demand driven accuracy:
Email: ultrivasales@ultriva.com | Tel: (408) 248-9803 | Website: ultriva.com | 