[ n o m o r e c rys ta l - ba l l f o r e c a s t i n g ]

Using Six
Steps, Not
Your Sixth
Sense
No more crystal-ball organization is one big During your presentation

forecasting oversight you’ve wit-

nessed. What other types
at aPICS 2009, you said the
companies that are best at
Steven Crane, CSCP, received some of the highest of mistakes do people often demand forecasting average
marks given by attendees of the 2009 APICS make with regard to their 15 percent less inventory, 17
International Conference & Expo for his compelling forecasts? percent better order fulfill-
presentation “A Roadmap to World-Class Forecasting The most common obstacle ment, 35 percent shorter
Accuracy.” APICS magazine Managing Editor to aligning around a single cash-to-cash cycle times, and
Elizabeth Rennie asked if he would delve deeper forecast is that different one-tenth the stockouts. How
into this topic with APICS magazine readers. Crane functions oftentimes are not have you worked to achieve
is director of strategic supply chain management at willing to compromise and a more effective demand
Wacker Chemie AG. He is responsible for strategic make adjustments to their forecast at the companies
supply chain management for the Wacker Polymers individual processes for the where you’ve worked, and
Division. greater good of the com- what are some of the most
pany. Truly aligning around important lessons you’ve
RENNIE: Most companies use based on what sales actually a single forecast takes strong learned along the way?
three types of forecasts— expects customers to buy— and committed leadership to I have achieved world-class
sales or channel, corporate and the earnings per share influence and facilitate the forecasting accuracy at
planning, or supplier. The that a chief financial officer necessary discussions that companies I have worked
challenge is that most busi- communicates to the invest- will result in alignment. at by using the six keys to
nesspeople don’t know how ment community is also improving forecast accu-
to align them. Why is this based on what sales expects What specific topics racy. These six keys have
alignment so important? customers to buy. If differ- should be involved in worked at companies even
CRANE: First of all, an organi- ent functions in a company these discussions? with different organization
zation can be easily confused are using different forecasts, [You should discuss] how structures, different SAP
if there is more than one then the decisions made will alignment benefits the configurations, and different
forecast. Secondly, the fore- not be consistent throughout overall organization and roles and responsibilities.
cast for a company needs to the supply chain. how having one single A few of the more impor-
be based on one set of num- forecast streamlines work tant lessons learned along
bers so that what purchasing I assume using different and increases the speed of the way include having
procures from suppliers is forecasts throughout an decision making. senior leadership support

44 January/February 2010 | APICS magazine


and having a champion who
can define the roadmap
for improvement and have
enough influence over the
organization for effective
change management to
take place.
Tell me more about the six
keys to improving forecast
accuracy. Can you take me
through these steps and
share why they are effective?
Step 1 is to design your
forecasting work process
first so that everyone in the
organization will understand
what the work process steps
are. Then, define the roles
and responsibilities of the
people who are involved in
the forecasting process con-
sistent with the defined work
process. Lastly, configure
[information technology]
applications to work with
the process and responsibili-
ties of the people.
Step 2 is to implement sta-
tistical forecasting to reduce
the amount of manual work
associated with forecast-
ing thousands of product-
customer combinations.
Oftentimes, statistical
forecasting will be more
accurate anyway because
it identifies trends and cor-
relations with sales history
and uses them to more
accurately predict the future.
Step 3 is to use forecast-
ing segmentation to identify
the about 20 percent of
customer-product combina-
tions that make up about
80 percent of the volume.
I refer to this population of
customer-product combi-
nations as the high-impact
combinations. It is this
group of customers and
products that you want the
[ the apics interview ]
sales organization to really
focus on to understand
future demand instead of
spending their time on all
customer forecasts. This
segmentation minimizes the
effort spent on forecasting
and maximizes accuracy.
Step 4 is to aggregate the
80 percent non-high-impact
combinations from step
3 up to the product level.
Aggregation of sporadic
combinations results in
more accurate forecasts.
Then, use the disaggrega-
tion functionality of most
forecasting engines to disag-
gregate the forecasts back
down to lower levels that
are needed to make supply
chain decisions.
Step 5 is to use sales
adjustments that come from
sales on the high-impact
combinations to make
adjustments to the statisti-
cal forecasts. The statistical
forecast is used as the start-
ing place, and then use sales
input about high-impact
customers to make changes
to the statistical forecast.
This approach minimizes the
effort required for forecast-
ing and maximizes the accu-
racy of the future forecast.
Step 6 is to measure the
accuracy of the forecasts and
focus on exception report-
ing. About 20 percent of a
planner’s time needs to be
spent analyzing the source of
forecast errors to understand
what corrections need to be
made to reduce error and
improve the accuracy of the
overall forecast.
Do you ever experience
pushback when trying to
implement your six steps?
Yes. Some of the obstacles
I overcame were a lack of
understanding of these new
concepts, which required
additional education and
training; people not believ-
ing these concepts would
work, which required
publicizing small successes
when they occurred; and
managers just not wanting
to change, which required
strong influential leadership
to provide a vision of what
is possible.
“Truly aligning
around a single
Your role at Wacker Chemie
involves sales and operation
forecast takes
planning (S&OP). Why do strong and
you feel S&OP is important
to the forecasting process?
committed
Because a forecast drives leadership.”
supply plans, production —Steven Crane, CSCP
plans, inventory plans,
procurement plans, logistics
plans, new product intro-
ductions, and investment
decisions, in order to coor-
dinate the decisions being made around downstream
made in all these different supply chain needs, such as
functional areas, a good what the supply plan should
S&OP process is essential to be, how much a plant should
integrating all of the deci- produce, what the raw mate-
sions with the business plan. rial requirements should be,
The most important les- how much inventory to hold
son I have learned about and where, and how much
how to achieve a more product will be shipped
accurate demand plan would and where. This is why the
be to establish sales forecast- accuracy of the forecast is
ing as a critical management the single most important
function. Until management supply chain plan … Every
recognizes that sales fore- other decision that is made
casting is critical to busi- in the supply chain should
ness success, the necessary be based on the forecast.
resources are not usually Achieving world-class
allocated to this function. forecasting accuracy should
be the number-one supply
You’ve said that the accuracy chain priority.
of the forecast is essential
to a company’s supply chain
planning. Why do you feel
that way? To comment on this article,
If the forecast is not very send a message to feedback@
accurate, poor decisions get apics.org.
APICS magazine | January/February 2010 45