Why You Should Consider Collaborative Forecasting
By Chris Inglett, Business Development Manager, Absolute Value
Is your inventory overstocked? Do you suffer from stockouts? Which of your distribution centers needs the most of which item? Is your production planning tightly aligned with customer needs? A solid forecasting procedure can make these questions a lot less daunting – but is having a solid forecasting process enough?
If your fill rates run at 100% accuracy, then the answer is Yes! – and you have exactly the right inventory levels in exactly the right locations for perfect customer service and efficient use of cash. However, even the best forecasting process is not accurate all the time. Once a forecast is set, the first order will impact the forecast, and if the order wasn’t exactly as anticipated, it’s possible that it could severely impact your forecast. All of which means there is still room to improve the forecast’s accuracy. And one of the best ways to accomplish this is through information sharing, or collaboration.
Internal CollaborationFor suppliers, internal collaboration involves working with knowledge from your sales and marketing departments to increase the accuracy of your forecast. Before your mind goes to, “I’m not talking to those guys,” understand that both departments could possess valuable information that would not be present in your demand history. For example, the sales team might know about new accounts, lost accounts, or an existing account’s intentions to begin purchasing a new product line from you. Or, may be aware of upcoming promotions that would require more inventory than what demand history recommended. All of which could significantly impact your forecast accuracy.
External CollaborationCollaborating with external stakeholders is also beneficial. If you are a supplier, you can request the expected demand from some of your largest customers, and later even review their anticipated needs against actual fill rates with them. This allows you to make them aware of their buying patterns and potentially take on some or all of the responsibility of managing the forecasting and replenishment process for these key clients. In some cases, your customer may even allow you to place orders on their behalf in a process known as Vendor Managed Inventory (VMI). Additionally, whether you are a distributor, manufacturer, or retailer, you can share your expected demand with a supplier in an effort to assist them in having the correct inventory levels to best serve your needs.
Collaboration ConsiderationsThere is a lot to consider when collaborating. Is the information you receive accurate? Should you collaborate with all customers/suppliers or just certain ones or items, and so on.
Here are some tips for consideration:
Verify data accuracy – When first receiving a customer’s forecasted demand, verify its accuracy a couple of times against the actual usage before using it in your demand planning forecast. If things don’t look right, ask questions.
Focus on dominant items – Consider collaborating with customers on dominant items, i.e. this customer represents most of the usage for this item.
Recognize the value of Internal Collaboration – Remember – internal collaboration is beneficial when specific actions such as discounts, sales, or promotions influence the demand for an item (where usage history does not tell the full story).
SummaryBottom line is that strong, trusted partnerships that share information can go a long way towards improving the accuracy of demand planning.
Internally, the sales and marketing teams can help the purchasing department (and themselves in the process), by sharing valuable information that even the most sophisticated forecasting processes or solutions cannot extract from demand history.
Externally, companies that share of relevant supply and demand information will be much better off since they’ll have a more holistic picture of their supply chain.
The end result is accurate inventory levels, and good customer fill rates, yielding high customer service levels.
When strong partnerships form and the information shared is accurate, either between departments within your organization, or between two companies, everyone can benefit greatly.
Using a great demand planning software solution can help you organize, view large amounts of data, and save time which you can use to collaborate more extensively – both internally and externally.
If you’d like to find out more about the Absolute Value Demand Planning system, and its Collaborative Forecasting capabilities, or would like to schedule a demo, let us know!