There is an age-old debate in demand planning: should you strive to be a “one number company” where all functions work to the same forecast. The idea is that a one number forecast creates alignment and that the whole company works to the same set of assumptions. But some say it creates more risk, and others say the idea of companies working to a one number is really just a myth. 

I personally do not understand what the fuss is about and believe there both is a right and wrong answer here. It depends on who you are, where you are in the organization, and what you are doing with the number. Taking these things into consideration, you absolutely need a one number attitude.

I think the debate may come from not defining what we mean by one number. If you mean that what you purchase matches exactly the unconstrained forecast which matches exactly what we report in financials, or if you mean that you march to a signal point forecast and ignore uncertainty – the answer is no, you don’t want that!

If you mean that you are generating the same baseline forecast for the entire company and translating it for other functions using the same set of assumptions or analysis – the answer is yes, you want that!

Besides having everyone singing off the same hymnal, this coordination ensures best practices in data gathering and analysis, modeling, managing assumptions, and, just as important, monitoring performance.

What Is A One Number Attitude?

A one number attitude is more than a consensus forecast, it is a mindset that starts from the very beginning. In defining the need of a forecast or any analysis, consensus is needed that you are working on the same problem. This too can be the same root problem with many possible tactical decisions related to it, and the analysis created to solve the problem can have many different uses by different roles and functions. The issue occurs when each need and role define their own problem in silos, driving different analysis that run counter to other competing analyses from other functions.

A one number attitude company has a core strategy and an aligned focus that relates to individual functional needs and decisions.

Data can mean something entirely different depending on where you pull it from, with what filters, at what time, and what aggregation. In gathering data and inputs, it is important to have not only a single set of truth, but consensus on what and how things are assembled.

This can be the difference between looking at shipments, orders or POS data, and how much data you are looking at to analyze sales sentiment. Problems are sure to arise when different functions are operating off of their own data sets and inputs are collected in vacuums. A one number attitude company has the same data and base assumptions and coordinates best practices on transforming or manipulating the inputs that you can tie back to original data.

One Number Forecasting & Planning Means Centralized Quantitative Analysis

You can have the same set of data and same set of assumptions and with different techniques come up with very wide and different results. Sometimes we see different functions doing different analyses using different principles using different data – even though the analyses serve similar purposes. One of the key things often forgotten here is judgment or expert opinion is used as a forecasting method and used widely without realizing the impacts. Some of the best forecasts are derailed or overridden based on someone else looking at the same data and operating off of intuition instead of a one set of number attitude.

A one number attitude company strives for centralized quantitative analysis whenever possible and is more analytically driven and performs analysis using the same principles and systems. They make sure to tie all the modeling and techniques back to the purpose of the forecast.

Not Planning To One Number, But To The Same Range

A one number attitude enables the entire organization to plan based on the same range of possibilities, assumptions, risk, and upsides. It provides the foundation for Finance, Production, Logistics, and Supply Chain to all work outside of their silos.

It gives way to meaningful and productive conversions around true planning and impacts of what each function may do. In this scenario, the same forecast that drives Operations and Sales and Marketing is now driving gross margin, variable cost, and cash flow. While there may be allowances and other financial adjustments to the sales forecast, using the same baseline allows you understand the drivers and variables better, and how they all connect to each other.

Forecasting is About Uncertainty & Uncertainty Is Never Just One Number

Oftentimes, companies get huge up on the term “one number” –  the truth is a train wreck on either side of the tracks is just as bad. Forecasting involves uncertainty and uncertainty is never a single number, and planning to a single number guarantee problems. On the other side not being on a single page and aligning to the same business goals, assumptions, data, and modeling to better understand and plan for the uncertainty is just as dangerous. It is the responsibility of the analyst or demand planner to present risk and assumptions that went into the analysis and it is incumbent upon users of those insights to think through all options, combinations, and permutations of potential plans.

One Number Planning Requires Coming Together

Such results do not come without challenges, however. To develop a one number culture, companies must break down information silos and eliminate multiple versions of the truth. This only happens when stakeholders throughout the organization openly share data and information, and that means the long-standing gap between functions must be bridged.

Everyone in the process has to stay very close to one another in sharing information and data coming from various parts of the organization. Often, Demand Planning is central in holding not only the entire process together but also the information to run it. Ultimately, when the forecast is tied to sound predictive analytics, and the same assumptions and data and analysis, executives have more timely and accurate information that allows them to make better decisions.

1. YES…It is Really Possible to Create a One Number Forecast. Are you tired of everyone second guessing your forecast? No one believes the number…..and why should they? There are multiple variations of your forecast floating around the company. Finance has one, sales has one, marketing too! It is ok for people to have different perspectives on what the forecast should be and why, but how do you reach consensus? Which number drives supply planning, inventory planning and production? How do you develop a financial forecast to determine net sales, earnings projections and cash flow with so many “forecasts” in play?

Many companies struggle with this. They have the latest forecasting software, utilize statistical modeling techniques, gain retailer market intelligence and use syndicated data wherever possible to develop the best forecast with the ultimate goal of having the right inventory in house when the customer decides to order. Even with all this, they fail to gain alignment and consensus within the organization on the forecast.

Not too long ago, World Kitchen LLC was one of those companies. With leadership support we developed a process that utilizes cross-functional sales collaboration using an account/ channel forecasting approach that integrates retailer data and promotes joint business planning. We have a one number, bottoms-up global process across the company. Account/ channel unit forecasts are dollarized into one consensus sales forecast that is jointly owned by Sales and Demand Planning, thereby eliminating multiple forecasts being developed within each functional area. Through a monthly S&OP process we gain consensus on a bottoms-up, One Number forecast that drives both the supply chain operation and the financial commitments of the company.

SOME KEY POINTS OF THE PROCESS INCLUDE:

1. Global account/channel unit forecasts are dollarized into one consensus sales forecast.  The forecast is jointly owned by Sales and Demand Planning with input from marketing and finance, eliminating multiple forecasts being developed within each functional area.
2. Utilization of Retailer Data as a primary input in the forecasting process.  This includes Point of Sale (POS), Customer Inventory, Customer In-stock levels, Points of Distribution, etc.
3. Use of a formal Gap Closure process with sales to better understand unconfirmed opportunities.  This data supports closing the gap to budget as well as offering visibility of opportunities to supply planning.
4. Formal monthly consensus meetings with Brand Marketing, Finance, Category, Customer Marketing, Supply Planning, Sales and Demand Planning.  Meetings led by Demand Planning/Sales.  Interactive meetings to review year to date performance, gaps to last forecast cycle, gaps to budget, gap closures, forecast error/bias and fill rate (service levels).
5. Monthly S&OP meeting with Executive Team/Leadership to review Operations (both manufacturing and sourcing), Inventory and Sales forecast.  Review metrics for key areas.

So, YES, you can develop a One Number forecast. Of course, this forecast will change over time and it is the cross functional collaboration throughout the process that makes this work.

See us share more on this topic at IBF’s Supply Chain Planning & Forecasting: Best Practices Conference in Orlando on October 22-24, 2012. We’re speaking at the IBF event!

Donna Roe
Director, Demand Planning and Replenishment
World Kitchen

Josh Mlynarcik
Demand Planning Manager
World Kitchen