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Improve Forecast Accuracy by the Consensus Process
By Andrew Hines May 2nd, 2007 @ 2:26pm | Permalink • • • • facebook twitter digg buzz
Categories: Management, Research, Supply Chain Tags: Forecasting, Forecast, Business Forecasting, Andrew Hines Business forecasting is hard. As MarkTwain once said, “the art of prophecy is very difficult, especially with respect to the future.” The key to developing an accurate forecasting system, as evidenced by a detailed case study in theHarvard Business Review (pay to view, unfortunately), is to incorporate all relevant information, wherever it may be, in whatever form it may take — opinion, internal data, market data, whatever. Thecase studied Leitax, a medium-size digital camera producer. Here’s a summary of how they improved their forecast: • The Problem: Leitax didn’t have a single, unified forecast to coordinate theiroperations. Sales developed their own projections, which production distrusted because the sales organization has the incentive to produce low-ball projections so they can “beat the mark.” Production, inturn, operated on their own version of the forecast, with their own assumptions. Finance had yet another forecast that always predicted achievement of financial targets so analysts would be happy. Theabsence of agreement and coordination created a truly discombobulated supply chain with alternating overstock/stockout inventory levels, and Leitax endured all the associated costs. • The Solution:Management at Leitax developed a system to synthesize all the forecasts. The two underlying principles were the efficient and timely sharing of information and assumptions, and respectful consideration ofdifferent forecasting perspectives. This manifested in a system called the Consensus Forecasting Process (CFP), which established a new group to manage the process, called the DMS. The DMS provided...