Creating reliable forecasts in unpredictable times is not easy, according to Jon Schreibfeder of Effective Inventory Management Inc., but it can be done. Good forecasting software is important, but to maximize the benefit, distributors must take the time to understand how it works, down to the specifics of how each calculation is performed.
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“You also need the collaborative element,” Schreibfeder says in the latest episode of the MDM Executive Briefing. “You need input from your management, your customers, your salespeople and even your vendors” in evaluating the accuracy of your forecasting system. Distributors that understand how these elements come together to create a forecast can more easily find and fix flaws. “This is a lot of work, but if you have a good forecast, your inventory value is going to go down,” he says.
Schreibfeder, the author of Achieving Effective Inventory Management, says investing time in forecasting can also improve purchasing departments’ productivity: “When I go into a distributor that does not forecast well, their purchasing departments often look like firehouses. Everyone’s running in circles screaming and shouting and fighting fires.” Putting those fires out costs money, due to the use of air freight, sending out special trucks or other costs.
On the other hand, purchasing departments of distributors who invest in accurate forecasting are often more productive and more profitable. They are, Schreibfeder says, “as quiet as libraries.”
Listen to more on forecasting in the latest episode of MDM Executive Briefing, Demand Forecasting in Uncertain Times from Jon Schreibfeder.