It seems that forecast accuracy is shrouded in more mystery than accuracy itself, especially to Executive management. Does the Executive team have a preconceived idea what is acceptable? There is certainly a lot of pressure to deliver? Are their expectations realistic? If you are currently supplying forecast accuracy measurements, does the Executive team truly understand those metrics?

One of the biggest disservices a company can do to those responsible for the forecast is to force a preconceived accuracy level on them. Forecasters should take the lead in removing the mystery, and managing the expectations/ preconceptions of Executive management.

An Executive typically reviews reports at a higher level, and tend not to have the time to go over pages of details. As an example, they are very much at home with the daily sales report, and have a tendency to associate forecast accuracy with the sales to budget percentage that they see daily. That is why when you ask them what they think the forecast accuracy should be, they typically respond with something like “95%”. But that is just a total quantity forecast to total quantity expected sales; what I call the “one number forecast to one number sales”. If you forecast 10 ties and 90 shirts and you sell 95 ties, management may think you have 95% accuracy. But, is that an accurate view of forecasting performance? Reporting a “one number” metric is not going to provide a realistic view of the state of the forecasts.

Multiple metrics should be employed. Some metrics measure accuracy while others measure error. Some metrics reveal tendency and others reveal ranges. The metrics chosen should tell the story of your forecast accuracy. But unless you’re reporting metrics to the VP of Forecasting, who would likely want see every metric under the sun. You should keep it simple enough for the Executive Team to understand, but provide enough information to show the good, the bad, and the ugly. I reference the term “diagnostics” a lot when discussing forecast accuracy. You need to run a battery of tests to know what’s going on under the hood; is there a tendency to over forecast? Is one input to the forecast causing most of the heartburn? Where are the largest variances?

Also, there is a tendency to compare your forecast accuracy or error to other “Benchmarks” and “Standards”, and/or to other companies. There have been a multitude of articles, blogs, reports, and posts written about forecast accuracy/ error benchmarks, and why it’s not appropriate to compare one company to another. However, forecast accuracy is affected by many factors, and every company is different. While it’s important to know what other companies may be achieving, expecting your company to reach an arbitrary goal is unrealistic, and can be detrimental to your process. And plus, while there may be specific formulas for the metric, there are no “Standards” in regards to what data should be used to produce them (orders data, shipment data, etc.).

Your Executive team needs to understand that accuracy measurements should be used as a tool to increase forecast accuracy. As the saying goes, “What can be measured, can be improved”. However, metrics should not be used to point fingers at others. They should also not be used to compare to benchmarks or other companies/ divisions within the same company. “Continuous Improvement” in forecast accuracy results from being measured on an ongoing basis. Changing the mindset and perceptions of others is always a challenge. Hopefully, this blog will be of some help if you ever happen to encounter these situations.

Happy forecasting!

Michael Morris, CPF
Manager, Inventory – Product Service and Parts
Yamaha Corporation of America

Hear Michael Morris speak more about managing executive expectations for forecasting at IBF’s upcoming Supply Chain Forecasting & Planing Conference in Scottsdale Arizona USA, February 23-25, 2014.   

Michael Morris - Yamaha

Have you ever pitched a new idea or process improvement where everyone agreed, but  you kept running into road blocks once you began the implementation? It seems that most everyone believes in “change” until it starts to affect them. The more you can manage or mitigate change, the more successful you will be.  There are several approaches to help reduce the heartburn associated with change management. Everything from basic education to even some mild underhandedness is fair play in my book; whatever it takes to make the implementation successful.

One key approach is to leverage power. This should be executed with forethought and care. And when I say this, I mean that you really have to do your homework in order to find out who your “ace” is going to be. Don’t necessarily go straight to the CEO; that may not be your best bet. If the CEO is too busy, you may not get the attention you need when you need it.  You need to find someone with horsepower who is available when you need them.  Gain their support by speaking their language; if your “ace” is the CFO, your approach should focus on saving money. If your “ace” is the VP of Sales, focus on better supply. You need to “Sell” the benefits of the new process in a way that your “ace” will understand it.

I was into year two of pitching my new forecasting process and was fighting an uphill battle when I got a call from the president of the company. He had seen my presentation and had heard my pitch many times before, so I was thrilled when he asked me for a “one on one” to explain, in detail, exactly how the new process would work. I’m not sure what prompted him to ask for the meeting, but it changed everything for me. He wanted to know it all; how the current process worked, how the new process would work, when we would be able to utilize the first forecast, and what kind of accuracy was I expecting? When I left that meeting, I knew he had an intimate understanding of what I wanted to do and that I finally had my “ace”. From then on, it was clear to everyone that the forecast project was “per the president” and things became quite a bit easier…

Everyone wants sound and efficient processes; the trick is getting them to implement one  with the least amount of heartburn. Having some “Horsepower” in your back pocket is essential in helping you achieve your goals.

Michael Morris CSCP, CPIM, CPF, PLS
Inventory and Planning Manager, Keyboard Division
Yamaha Corporation of America

Hear Michael Speak at: