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Companies today tend to make forecasts based more on “art” than “science.” Yet companies need accurate information to focus on what to build, move, or buy to create accurate supply chain plans. In order to make the best mid-term and long-term decisions for an organization, access to solid forecasts is essential.
Having accurate demand forecasts can cut costs throughout the supply chain. Companies that are the best at demand forecasting have less inventory, stronger order fulfillment, and shorter cash-to-cash cycle times.
Furthermore, studying best practices in demand management has revealed that it is most important to focus on understanding the factors that drive demand when improving forecasting and related business processes. No forecast will ever be perfect. Companies need to understand the risks and uncertainties in the forecasts they do have and use this understanding to make decisions to invest in forecast improvements and supply chain strategies.
Forecast optimization is the discipline of continuously understanding demand and root causes of demand variability to optimize forecasts and supply chain performance against business objectives, changing market conditions, and supply chain constraints. Forecast optimization can help companies determine the best ways to manage variability and create agile supply chains.
The i2 solution: i2 Forecast Optimization
i2 Forecast Optimization can enable an organization to focus on the most efficient way to build a forecasting strategy. Using a phased approach, a company can decide what is best for its operations.
In the initial phase, which focuses on the strategic diagnostic, an organization can determine the root causes of variability. Those root causes can then be evaluated and a roadmap to operationalize the best practices for a pilot rollout can be determined. Long-term guidelines to automate and develop a process for a broader rollout are also determined in this stage.
During the next phase, a company focuses on deploying a demand model. This can be a limited scope engagement and includes the option for delivering a hosted model. This phase includes a regular (daily or weekly) business analysis.
The final phase is the rollout of a complete forecasting model. This rollout can be a hosted or behind-the-firewall option, depending on an organization’s business needs.
This scope is much expanded beyond the initial rollout and can include additional product and customer information as dictated by the company’s business objectives.
Key capabilities of i2 Forecast Optimization can include the ability to anticipate, sense, and respond to the latest market conditions.
Leading-companies focus on demand insight and turn the act of running a business into a continuous learning process. This can include four steps:
- Understand
Understand demand drivers and behavior
- Anticipate
Leverage the understanding to proactively anticipate market behavior and shape demand and supply to achieve business goals
- Sense
Monitor leading indicators, competitive activity, consumer sales, supply availability, and plan performance to identify opportunities and risks
- Respond
Respond by prioritizing and delegating issues to decision makers who can analyze and act quickly so that issues can be resolved before they become problems and opportunities can be acted on before competitors take notice
Furthermore, these leaders continuously close the feedback loop to improve understanding by reviewing past behavior to evaluate effectiveness of response actions.
Benefits of i2 Forecast Optimization can include:
- Gaining deep insight into demand behavior
- Optimization of demand and supply management aspects through:
- Process design
- Lean manufacturing and proactive risk management strategies
- Accurate forecasting models
- Profitable pricing actions and promotions
- Effective new product introductions
- Optimized customer fulfillment rules
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