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issue: December 2004 APPLIANCE Magazine

Appliance Line
Best Practice Makes Perfect


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By Lisa Bonnema, Editor, APPLIANCE Magazine

As 2004 comes to a close, it’s hard not to obsess over what the next year holds. And while many of you probably haven’t started your holiday shopping, my guess is that your business plans are carefully wrapped and adorned with a shiny red bow.

Lisa Bonnema, Editor, APPLIANCE Magazine

And they should be. Planning is important, and operating without a plan would be business suicide. But times are changing more rapidly than ever, and if there’s one thing the world has learned in recent years, it’s that no amount of crystal balling can prepare you for the unexpected.

The only real defense is smart planning and continuous improvement. An obvious concept, perhaps, but the last time I checked there were still a lot of companies in the red. Concept and practice are two totally different things.

Even Anish Jain, who is in the business of forecasting, agrees. “Forecasting is probably one of the only professions out there where you are paid to be wrong,” notes Mr. Jain, managing director of the Institute of Business Forecasting (IBF). “But it is not about being wrong; it is about minimizing how wrong you are.”

In fact, that’s the main reason why IBF started hosting a Best Practices Conference on business forecasting and demand planning. “The events have been put together to stimulate ideas, to help people learn what other companies are doing,” he says. “The goal of our organization is to help folks gain knowledge and learn methodologies to build up a skill set for improving forecast accuracy.”

The organization’s most recent event was held in late October and featured speakers from a variety of industries—from aircraft and utilities to packaged goods and appliances. Mr. Jain says that was done purposely. “Forecasting is essentially the same. It is just how you define the variables and your time horizons,” he says.

As Mr. Jain explains, business forecasting involves making an estimate of your demand and then deciding what to do with that number once you’ve made those estimates. Critical elements such as inventory, production, staffing, and your supply chain should all be based on that estimate. “Obviously if you do not have accurate forecasts, you jeopardize money being either tied up in your inventory, or you may have a situation where you may lose a customer by not having enough inventory on the store shelf,” notes Mr. Jain. “Having accurate numbers balances those two issues.”

And although business forecasting certainly isn’t a new concept, just a small sampling of the 30-plus presentations at IBF’s conference indicate that there’s much to be learned.

A workshop by Dr. Elaine Deschamps, senior forecaster from the Caseload Forecast Council, discussed the politics of forecasting and the concept of consensus forecasting. Because each area of a business has its own biases, the forecaster is often put in the middle of some strong opinions that may be based on hidden agendas. Sales, for example, might give a lower number in hopes of having lower quotas that are easier to meet.

Production, on the other hand, might offer a larger estimate because they want to produce more. One idea is to have regular meetings with a representative from each team so that everyone is on the same page and understands that each group has to finally agree on a consensus number.

Several other presentations addressed the idea of collaborative forecasting—connecting all of the pieces of supply and demand to come up with a more accurate picture of what is really happening. Let’s say, for example, a car dealership had a huge inventory of green cars. Somehow, a sales person was successful in selling those green cars, and management was suddenly seeing an accelerated sale item. Does that mean the manufacturer should start producing more green cars? The obvious answer, Mr. Jain says, is no, as this certainly doesn’t give a true picture of what the demand was. But if there’s no communication, that error certainly could be made, he adds.
One of the more creative presentations was from Weslie Willis, finance manager of Retail Sales at GE Consumer and Industrial. Using GE’s tagline of “Imagination at Work,” Ms. Willis stressed the importance of mixing realistic forecasts with creative thinking. This means designing a strategic vision beyond the typical historical forecasting method, including how to account for new product introductions and picking up a new customer base.

Ms. Willis’s “Realistic and Creative Forecast Cycle” starts in the October to February period, when she advises creating a sales operating plan that is common for both financial and operating projections. November through March should be spent devising an operational plan for achieving financials, broken down to the customer and sales region level. She calls April and May “the time to think.” This is when business leaders develop plans to grow their business units over the long run and the funding it will require. May through July is Corporate Session I, where you create a 5-year strategic vision for the business—both financial and operational—and August through November is Corporate Session II, where you decide on a final estimate of the current year financials and develop a basis for the following year’s operational plan.

Ms. Willis says that forecasts not only need to involve concrete financials and solid action plans, they also need to reflect inventive ideas and creative plans to generate additional sales. She also says that forecasting should involve having the vision to put customers first and building a model based on input from all players—industry, customers, new product introductions, and production, sales, and inventory teams. The statistical, historical plan, she says, represents the status quo; the final forecast that will gain senior management approval requires imagination.

That’s certainly some food for thought. The good news is that this is not the last piece of best practice insight you’ll be getting from APPLIANCE. In fact, it’s just an appetizer. Starting with our January 2005 issue, we will be implementing a new editorial focus devoted to Best Practices.

Why? Well, for all the reasons Mr. Jain mentioned, but more importantly, because it’s our job to help you do your job better. In the coming issues, expect to see pullout boxes labeled Best Practices that offer tips on everything from choosing the right materials to the latest features in design software. And recognizing the importance of every business function within a company, our Best Practice focus will serve each and every part of your decision-making team—engineering, production, purchasing, marketing, and management.

As Mr. Jain puts it, “The days of licking your finger and testing the wind are long gone.” We couldn’t have said it better. And although we don’t claim to hold all the answers to the future, we do promise to be an information source packed with useful tips that will help you achieve success. Just consider it our gift to you, but let’s make the bow green this time. Happy Holidays!

 

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