Forecast Errors
Volume I, Issue 2, November 24, 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 Due to Significant Shifts in Demand Patterns 

John Kamal, vice president of supply chain solutions, Triple Point Technology wrote in Supply & Demand Chain Executive magazine the demand volatility has become a major focus area for supply chain managers at large process manufacturers. While businesses have been experiencing significant shifts in demand patterns, the supply of feedstock and other key materials have become notoriously volatile in the same period. Volatile demand and volatile supply are intimately linked in a circular causal relationship. But geo-politics, globalization and depressed economic trajectories in developed markets have all contributed to the problem.  The traditional model of comparatively stable supply and demand, with tolerable amounts of unpredictability, has been overturned with greater variability on both sides of the supply chain. Securing profitability has become more challenging and addressing the lack of clarity in the demand picture is now more challenging than ever. Read more here.

Forecast Errors in Safety Stock is Costly

Digital Supply Chain reported that companies are more global today than ever before; lead times have been extended with the effective practice of lean management made difficult by the volatility of demand. The use of safety stock or inventory to protect against variability is no longer so viable; companies now need to understand and measure that variability in demand and be able to predict it more accurately with an enterprise-wide solution, which can look at millions of forecasts up and down a product hierarchy. 

Forecast Errors Hit Big-Box Retailers

Alex Woodie reported for IT Jungle that wholesaler distributors that fail to update demand forecasts are often left holding the bag when sales patterns change downstream or retailers cease carrying a product. In exchange for vast volumes, big-box retailers like Wal-Mart and Home Depot extract deep concessions from their suppliers and often require them to maintain high service levels and in-stock percentages. When retailers add or drop products from their shelves, or demand unexpectedly changes, that makes it more difficult for distributors to maintain that "Goldilocks" zone between overstocking and understocking.  

Forecast Errors Frequent in Cyclical Semiconductor Industry

According to Deloitte, because of the cyclical and volatile nature of the semiconductor industry, sales forecasting is perhaps one of the most critical factors for financial success year-in and year-out. An accurate forecast can help minimize the need to unexpectedly ramp-up or burn-off inventory, either of which can wreak havoc on profitability. Companies need one version of the truth to run their businesses from inventory to allocation of marketing funds to salesforce compensation. CFOs can look beyond the standard measures to focus on end-user demand forecasting, operational forecasting and long-term contracting to make sales forecasting more effective. Read more here.