September 2, 2016

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Forecast accuracy is a hot topic in many Sales and Operations reviews.  Operations can't understand how forecasts can always be so far off, and Sales can't understand why Operations keeps so much excess inventory on-hand (to reduce the possibility of missing orders).


The good news: There are very sophisticated forecasting software systems that utilize complex statistical algorithms that can help smooth these forecast variations and make more accurate predictions.  Or, at least give the impression in those meetings that at least some action is being taken to improve accuracy.  


The bad news: The harder your business is to run- the more variation in Sales mix and demand over time- the less effective the algorithms are likely to be.  And that's just where you want them to be powerful.


The best way to maintain service levels at 99% and keep inventory levels as low as possible is to reduce product replenishment lead times to less than demand lead times.  Not always possible you say?  Not always, but don't give up too soon.  Even as you get closer to perfection good things happen.  And there are some techniques to buffer physically against the forecast variation until it can be eliminated.


Learning how to do this requires commitment to learn and implement advanced Lean techniques and to take the time to implement them all in the correct sequence within your supply chain.  


As you get closer to the ideal state of flow within your extended value stream, customer service goes up, working capital goes down and less of your financial outcome depends on forecast accuracy. And in some cases, the forecast meetings can stop completely.    

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