The conventional wisdom in the electronics industry is that most, if not all, forecasts -- whether of sales, demand, or plant capacity utilization -- are often wildly off the mark, somewhat unreliable, and useless to a large extent. Don't believe any of that. Forecasts, even the not so reliable ones, have a major role in supply chain planning, as long as you know how to use them and adjust for shifting market conditions.
Even the executives who say market forecasts are unreliable have been caught citing figures from research firms to support certain strategic actions. There are justifications for this double position and it's important to understand why companies find themselves relying on what they assume could be inaccurate numbers for strategic project planning. Market projections serve a variety of functions and a supply chain that fails to operate on the basis of certain critical assumptions will ultimately fail.
In fact, one of the key elements of a competitive supply chain is the ability to foretell with some degree of accuracy future events related to demand-supply conditions and also subjects such as the direction of the general economy, supplier reliability, natural disasters (yes!), and the weather. Preparing for the unknown has become a fact of life for many supply chain executives where CEOs expect operations to keep on running regardless of the severity of a disaster for instance. In other words, forecasts should not be focused simply on the accuracy of the expected events but on how a company can prepare for events beyond its control.
Those who discredit forecasts focus wrongly on the issue of accuracy whereas what they need to look more closely at is a company's ability to anticipate and prepare for both the expected and the unexpected. How well your company is able to gauge market trends and on this basis stake out a future position will determine its success. Interestingly, the supply chain is central to such activities. Here are some suggested actions with regard to forecast numbers:
- Partner with reputable organizations:
- Use multiple sources:
- Research beyond your market:
- Use shorter-term forecasts for project management and longer-term projections for roadmap building:
- Learn about the most effective ways to use market data:
The best research firms understand they won't always get it right but they try to come as close as possible. What they also do best is continuous market monitoring and information filtering as this comes in from partners and other sources. Select your forecast partner carefully and check their track record as well as methodology to assure a reasonable level of dependability.
It may cost more to diversify your research sources but the gains from such a strategy will compensate for the additional expense. Research firms use different methodologies and databases that might be slightly or widely different from what rivals use. By sourcing data from more than one provider, you increase the likelihood of gaining a fuller picture of events in your end market and give the supply chain managers better tools upon which to base their planning.
Many companies make the mistake of concentrating research spending only on their market sector and its material needs, neglecting the end users and failing as a result to capture a more complete picture of demand needs. Partner only with companies that look beyond your immediate customers when conducting their research. The electronics industry is notorious for overstating and understating demand due to the failure of company management and their research partners to delve deeper into consumption patterns of end users.
In today's market, very few companies know what demand will really look like beyond 60 to 90 days, except for the aviation industry where deliveries are expected years from order date. Even in aviation, airlines have been known to whittle down orders or aggressively ratchet them up when required, screwing up careful planning on the manufacturers' end. The best-in-class companies carefully match short-term projections with book-to-bill to determine supply chain support requirements while using longer-term projections to set future capacity needs.
If your company is spending a lot of money on research, make sure it is also getting value for its investment. It's important to teach employees to be well versed in the most effective ways to use research materials as it can be both a useful and dangerous tool. There are numerous resources on the Web for understanding the best ways to use research data. Start with a provider you feel comfortable with but keep your BS detector on.