Page 90 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Unit 4: Demand Planning and Forecasting

and information systems. This description includes the members from external partners like Notes
suppliers and customers. The effort has to be focused to ensure two objectives, (a) the most
recent and best possible information is included in the final forecast, and (b) the forecast addresses
the changing needs and environments facing the business.
The group is given the responsibility of deciding on the goals, objectives and immediate needs
of the collaborative forecast process. These are based on the informational needs of all forecast
users. The group will identify the factors, processes, technologies that impact the forecast, and
the relevant sources of information available. The sources could be internal or external. The
final result is dependant of the ability of the group to ensure that information can be accessed at
all necessary levels by all the users.
Companies often hold at least two meetings during the month, scheduled on a regular basis. The
first meeting is for the purpose of gathering information and preparing the base forecast. The
second meeting is to bring alternative forecasts together and work through issues to arrive at a
consensus.
Once the relevant information is decided upon and available, the next step is at the level of the
firm. The members of the supply chain decide on the process by which the various pieces of
information will be brought together. After necessary approvals, the consensus forecast is used
for the company’s sales and planning systems.

Example: Gillette found that senior managers connect to each other; distributors connect
with Gillette; and so on.
The aligned teams give it an added advantage; they support the company’s mission to strengthen
key customer relationships through an effective, collaborative, improvement-oriented process.
From doing it in this way, Gillette found numerous opportunities to improve issues such as
shrinkage, shelf replenishment, packaging, and display design. It also makes sense because by
worrying about customers’ performance issues, they reduce the retailer loss of sale, and in the
bargain increase their own sale, too.

However, to make this type of synergy happen, measurements and incentives must be a part of
the process. These ensure that the forecast accuracy and related supply chain performance actually
do improve as a result of the collaborative process. Measurements should be such that demonstrate
the success of the collaborative efforts, not just at a fixed point in time, but that measure the rate
of improvement over time.
Measurements can vary, but should include the measurement of the actual versus the forecast.
These provide the firms the ability to compare the forecasts both for consistency and
comparability. A common method is to compute the absolute error for each item (the actual
minus the forecast, divided by the actual, without the sign).

Another key measurement is a bias indicator. This shows the percentage of items that were
either over or under forecasted. The bias indicator points out trends and tendencies that lead to
over or under forecast certain items. Compensating for this bias can be critical to improving the
affected forecasts.
The collaborative approach is a deviation from tradition and requires members to make
significant changes in the ways they worked in the past. The changes in working methods often
result in resistance issues. If participants do not actually change their behaviour, the effort that
goes into creating an improved forecast process will generally not produce the best results. In
addition to changing old work habits, the collaborative process also demands more work for
many of the participants. Participants who were previously not involved with the forecasting
process often may view the process as extra work.

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