IN ORDER TO IMPROVE THE QUALITY OF BUSINESS DECISIONS Improving Forecast Performance

Elements of Forecast Performance Accurate Timely Internally Consistent Realistic Assumptions Risk Sensitive Demonstrates Range of Outcomes Accuracy Forecasted Outcomes

Accurate

Timely

Internally Consistent

Realistic Assumptions

Risk Sensitive

Demonstrates Range of Outcomes

Accuracy

Forecasted Outcomes

Elements of Forecast Performance Meets Diversity of User Needs Reflects Business Segmentations Used in Management and Management Decisions Incorporates Intelligence of Functional Groups Reflects Expert Opinion & Judgment Communicated Clearly and Concisely

Meets Diversity of User Needs

Reflects Business Segmentations Used in Management and Management Decisions

Incorporates Intelligence of Functional Groups

Reflects Expert Opinion & Judgment

Communicated Clearly and Concisely

ACCURACY IS IMPORTANT! But is not the sole factor in improving forecasting performance

But is not the sole factor in improving forecasting performance

Measure, Track, and Evaluate Accuracy! 06/10/09

Forecast to Take Advantage of the Pattern of Error! 06/10/09 Mean Average Percent Error (MAPE) Source: IBF 2007 Survey

Employ Operational Metrics such as…….. Customer Satisfaction Ratings Order Fill Rates Order Fill Times Customer Service Calls Customer Service Response Times Inventory Levels & Turns Shipping Times Space Utilization Rates Production and Storage Capacity Levels

Customer Satisfaction Ratings

Order Fill Rates

Order Fill Times

Customer Service Calls

Customer Service Response Times

Inventory Levels & Turns

Shipping Times

Space Utilization Rates

Production and Storage Capacity Levels

Use Ranges….. Not Just Point Estimates Forecast Ranges 99% Confidence (3sd) 95% Confidence (2sd) 68% Confidence (1sd) Accuracy Ranges 99% Confidence (3sd) 95% Confidence (2sd) 68% Confidence (1sd)

Forecast Ranges

99% Confidence (3sd)

95% Confidence (2sd)

68% Confidence (1sd)

Accuracy Ranges

99% Confidence (3sd)

95% Confidence (2sd)

68% Confidence (1sd)

Use Simulation Scenarios Gather Key Concerns of Business Team Modulate Key Assumptions Estimate Scenario Subjective Probabilities Evaluate Business Issues of Alternative Outcomes Focus on Extremes - Best Case and Worst Case Outcomes Work with Management on Hedging and Business Action Strategies

Gather Key Concerns of Business Team

Modulate Key Assumptions

Estimate Scenario Subjective Probabilities

Evaluate Business Issues of Alternative Outcomes

Focus on Extremes - Best Case and Worst Case Outcomes

Work with Management on Hedging and Business Action Strategies

QUESTIONS??

CSI-S&OP: Why S&OP fails A brief look some causes for failed S&OP processes

Diagnosis of S&OP? Right definitions Will help understand what it is Will help drive the process Reasonable expectations Will help set the agenda Will help drive accountability Will help push for follow up Right people Not too many/not too few Communication is critical Right Data

Right definitions

Will help understand what it is

Will help drive the process

Reasonable expectations

Will help set the agenda

Will help drive accountability

Will help push for follow up

Right people

Not too many/not too few

Communication is critical

Right Data

“ Where does it hurt?” How often is your S&OP? Who schedules it? How hard is it to move the meeting? What if you can’t attend?

How often is your S&OP?

Who schedules it?

How hard is it to move the meeting?

What if you can’t attend?

Symptoms Lack of Upper Management Support If it important to upper management it will viewed as important to the whole company Sometimes decisions will be dramatic and need upper management support to carry through Remedy You need a sponsor from upper management who will “Champion” the process Show some positive early results. Even though they may not be quantitative. Begin engaging upper management in the process

Lack of Upper Management Support

If it important to upper management it will viewed as important to the whole company

Sometimes decisions will be dramatic and need upper management support to carry through

Remedy

You need a sponsor from upper management who will “Champion” the process

Show some positive early results. Even though they may not be quantitative.

Begin engaging upper management in the process

Symptoms Lack of Goals and Expectations Set specific goals/takeaways from the meeting Make goals reasonable and achievable Involve everyone in the expectations Remedy Key Performance Metrics Follow ups

Lack of Goals and Expectations

Set specific goals/takeaways from the meeting

Make goals reasonable and achievable

Involve everyone in the expectations

Remedy

Key Performance Metrics

Follow ups

Symptoms Incorrect or Irrelevant Data Balance between history and forecast (don’t be too “forward thinking”) The correct forecast model Dollars vs. units Budget or Operating Plan Remedy Continue to review the relevance of the data Update the data Don’t be afraid to use new data

Incorrect or Irrelevant Data

Balance between history and forecast (don’t be too “forward thinking”)

The correct forecast model

Dollars vs. units

Budget or Operating Plan

Remedy

Continue to review the relevance of the data

Update the data

Don’t be afraid to use new data

Symptoms Lack of Communication Make sure lower levels of management have clear direction of the decisions made in S&OP Publish relevant data to those not in S&OP Make sure all departments communicate the same message Remedy Have team member specifically in charge of getting communication into the right hands Publish something that it quick and easy to read

Lack of Communication

Make sure lower levels of management have clear direction of the decisions made in S&OP

Publish relevant data to those not in S&OP

Make sure all departments communicate the same message

Remedy

Have team member specifically in charge of getting communication into the right hands

Publish something that it quick and easy to read

Symptoms Lack of Consensus/Agreement Leave “politics” at the door Look at the “Big Picture” Don’t play the blame game Remedy Check baggage at the door Build TEAMWORK If possible, cross departmental work

Lack of Consensus/Agreement

Leave “politics” at the door

Look at the “Big Picture”

Don’t play the blame game

Remedy

Check baggage at the door

Build TEAMWORK

If possible, cross departmental work

Symptoms Incorrect Focus It involves the entire company. Needs to have direction

Incorrect Focus

It involves the entire company.

Needs to have direction

Questions

August 24 & 25, 2009 www.ibf.org/0809.cfm