IBFChapter Presentation Crisis Forecasting


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Keynote Presentation at the Inaugural Swiss Chapter Meeting in Basel, Switzerland. For supply chain professionals and Demand Planners, tips on forecasting in this current challenging economy.

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IBFChapter Presentation Crisis Forecasting

  1. 1. IBF - INSTITUTE OF BUSINESS FORECASTING & PLANNING Chapter Meeting IBF Switzerland Basel, March 31st 2009
  2. 2. <ul><li>High forecasting accuracy is always a big benefit, however, the true value unveils in crisis management </li></ul><ul><li>The sooner and more precisely management is able to foresee the length and depth of a demand slowdown, the lower the opportunity costs as compared of doing nothing and react </li></ul><ul><li>The Problem is how to accurately forecast a retraction in demand ? </li></ul>Hypothesis: More than ever, good forecasts are needed in times of crisis
  3. 3. An Example: Four Forecast Timelines for one Product vs. Actuals What happened: The business has started to decline from M1 creating an increase in forecast inaccuracy. In M8 forecast accuracy increases again. Timing of Understanding: In M8 it is understood that the retraction in demand is not a temporarily one and that the production need to cope with significant lower capacity utilization. Action Reaction
  4. 4. What Would be the Costs of “Wrong” Forecasting ? Assumption: Potential Monthly Cost Savings by e.g. Reducing 2 Shift Production to 1 Shift: 100.000 EUR Conclusion: Company 2 would pay more than Company 1 due to „wrong“ forecasting = 4 x 100 K EUR. Action Reaction Company 1 Reaction Company 2
  5. 5. <ul><li>The same metrics would also apply for a rapidly growing demand pattern </li></ul><ul><li>The company which is able to react faster to the changes in the market will be able to retract business faster and make more profits compared to the “slower” forecasting company </li></ul>Example 2: The Economy rebounds
  6. 6. Example 2: What would be the Opportunity Costs for „Wrong“ Forecasting ? Action Reaction Company 1 Reaction Company 2 Conclusion: Company 1 would have better chances to re-gain market share and secure long term competitiveness
  7. 7. Result from Team Brainstorm Session <ul><li>Basically, two strategies have been elaborated </li></ul><ul><ul><li>Early Indicators Approach </li></ul></ul><ul><ul><li>„ Data Is Not The Solution“ Approach </li></ul></ul>
  8. 8. Early Indicators Approach <ul><li>Try to identify reliable Early Indicators for the business </li></ul><ul><li>These can be macroeconomical ones line Purchasing Index, Consumer Confidence, Business Confidence, etc </li></ul><ul><li>These can also be business specific Early Indicators such as Point of Sale (POS) Data </li></ul><ul><li>Even if Early Indicators are not telling where the forecast will exactly be, they can show a direction preview of the business </li></ul>
  9. 9. Data Is Not The Solution Approach <ul><li>This Approach is to admit that in the current situation, data will not provide a reliable basis for forecasting and hence, it will be difficuilt to achieve a competitive advantage by solely relying on data </li></ul><ul><li>The conclusion of this approach is to maximize Flexibility in the Supply Chain to be able to adapt as fast as possible towards significant changes in demand </li></ul><ul><li>On the forecasting side, a naive forecast, where the last month‘s actual becomes the next months forecast may be more reliable strategy than a statistical one </li></ul>