June 5, 2023 The Art of Optimized Forecasting

Strategic supply chain forecasting harnesses expertise throughout organizations to achieve continuous improvement and sustainable growth.

By Matt Stekier, Principal at Plante Moran

Volatility in demand, manufacturing, and resourcing in the business landscape makes accurate forecasting increasingly challenging. Imports are declining at record rates, and companies continue to offload excess inventory. While consistent forecast accuracy of 80 percent is generally considered world-class and extremely rare, fluctuations in consumer demand, which were amplified during the pandemic, can make forecasting even more challenging to hone.

Preparation, partnership, and accountability across the entire organization are crucial for companies to be nimble and forecast more accurately. Removing barriers, monitoring key performance indicators (KPIs), and shifting cultural mindsets toward strategic, ongoing efficiencies, will support increased practice effectiveness and competitive advantages, even in an uncertain market.

Future-proofing with forecasting

Forecasting is the critical first step for sales and operations planning (S&OP), allowing businesses to examine the market size and production volume needed to meet customer demand. It helps leaders evaluate the viability of key strategic decisions like expanding production capacity, procuring raw materials, and optimizing logistics and warehouse operations.

Forecasting will never be perfect; it inherently involves a degree of inaccuracy. However, the key benefits come from learning from past performance and incorporating those micro lessons into future forecasts. Organizations can gradually improve accuracy by regularly reviewing and fine-tuning forecasts, enhancing preparedness to meet customer needs. Forecasting helps businesses with scenario planning, proactively aligning product offerings with evolving market trends and demands.

Consequences of poor forecasting

Poor forecasting often means an organization is not comparing predictions against outcomes, and examining why it was wrong. It can also indicate that the business is not prepared to adapt to customer demands with severe implications for inventory planning. Without optimized forecasting, businesses may face excesses that unnecessarily tie up capital and lead to increased storage costs and waste.

Conversely, insufficient inventory can result in missed sales, disappointed customers, and damaged reputation. It limits a company’s adaptability through challenges, which can stifle overall business performance. With a shift from reactive firefighting to proactive strategic planning, organizations can have more time to streamline processes, adapt to market changes, and effectively manage risks.

Overcoming barriers and assembling a team

If forecasting is such a powerful catalyst for growth, why aren’t all companies implementing and perfecting it? Barriers to effective forecasting often come down to internal influences and cautious mindsets. The fear of being wrong, outdated methods of thinking, assuming forecasting is unnecessary, and resistance to change can all inhibit progress. To overcome these barriers, executive leadership must foster a culture of experimentation and open communication, where individuals can voice perspectives without laying blame, contentious disagreements, or fear of repercussions. 

Sales, marketing, procurement, operations, logistics, finance, and IT are all essential to a cohesive and successful forecasting structure. While collaborative forecasting involves cross-organizational expertise, executive leaders are critical mediators and facilitators. They not only set the tone for meetings, they also guide discussions, ensure accountability, and provide top-down feedback. By championing strategic forecasting, executives empower teams to collaborate while instilling a positive culture that necessitates teamwork and constructive dialogue.

To get started, here is a framework to get everyone at the table, aligned and moving toward an integrated forecasting process:

• Executive leadership must champion the process, working with departments to identify leads within each organizational function to contribute and establish a monthly meeting cadence.
• Establish mutually agreed upon KPIs as well as criteria for how they are measured, evaluated and used within the feedback loop for continuous improvement. These will be used to benchmark and track forecasting success. Ownership should also be established for specific results.
• Develop an initial forecast, documenting assumptions used to create this forecast. This turns the forecast into a true demand plan.
• Collect KPI data that can be used in monthly meetings to assess forecast successes and identify areas for improvement, which are in turn implemented, measured and used to incrementally improve each iteration of the forecast.

A past predictor of future successes

Forecasting is not a one-time activity that businesses can set and forget. It is an ongoing process driving continuous improvement. Companies must get comfortable with forecasts being an inherently inaccurate process because, over time, using actual outcomes to measure and evaluate against forecasts will help them glean invaluable insights, identify inefficiencies, and optimize for the future. The goal is to be ‘less wrong’ each month.

By embracing strategic preparation and collaboration throughout the organization, businesses can navigate challenges with agility, anticipate customer demands, and be positioned for sustained growth. Procurement can execute a proper strategic sourcing strategy, operational CapEx can solidify the right capabilities and capacities, and sufficient inventory levels will ensure the right product is available for your customers without having too much capital tied up. Effective forecasting, supported by a culture of open dialogue, collaboration, and informed, data-driven decision-making, equips businesses to thrive through uncertainty and ultimately outperform their competitors.

About the author:
Matt Stekier, Principal, Plante Moran

Matt Stekier is a seasoned consultant with over 20 years of experience in supply chain and operations, specializing in medical devices, food and beverage, and automotive manufacturing. He is known for his practical approach to problem-solving, resulting in sustainable solutions that optimize processes, reduce complexity, and drive growth. As a certified Six Sigma Green Belt and expert in various lean methodologies, Matt’s clients trust him to deliver results. A graduate of Central Michigan (BSBA) and Wayne State Universities (MBA), Matt is also an active member of the Association for Supply Chain Management as treasurer on their board of directors in his local chapter.

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