Learn  about Tom, workshops, white  papers, books and products relating to your supply chain planning processes. WORDS FROM WALLACE - June '06 IS YOUR FORECASTING WASTEFUL? Lean Manufacturing focuses on eliminating waste, primarily in production processes. It’s great stuff and, if you’re not using it, you’re probably missing a lot of benefits.   My colleague Bob Stahl and I have coined a new term: Lean Forecasting. This focuses on eliminating waste in the forecasting process, where waste means those things that do not add value to the forecasts. A primary example of this is doing more forecasting than is necessary; this means working harder – expending more effort – for no benefit. Lean Manufacturing, in addition to eliminating waste, results in products of higher quality. And so it is with Lean Forecasting: it results in forecasts that are better, more valid, more helpful. Timing is Everything To get at this subject, we need to focus on timing, specifically the Planning Time Fence (PTF).   This is the point in the future which represents the cumulative purchasing and manufacturing lead time to produce a product. Obviously, it varies from company to company: *  Companies getting most or all of their products from off-shore will have longer lead times and hence their Planning Time Fence may be out six months or more. *  Typical companies not off-shoring will tend to have lead times between one and three months. *  Companies doing a good job with Lean Manufacturing would most likely have cumulative lead times of one or several weeks. Thus the PTF would not need to be formally identified. *  Companies doing Postponement have effectively zero lead time for specific end products and hence the Planning Time Fence would be non-existent. (Postponement means finishing the product very quickly after the customer order is received, a la Dell Computer.) Aggregate versus Detailed Forecasts Here’s our premise: you don’t need to forecast all your products in detail beyond the Planning Time Fence. Please notice the phrase “all your products.” Does that imply that you might need to forecast some of the products farther out? Absolutely. Let’s say that your Planning Time Fence is two months – for most of your 500 products. However, you are importing about 100 of those items from Asia. You’ll need to project those products farther into the future, perhaps six months or so. But, you don’t need to do it for all 500 of them. Similarly, another company may have ten of its 300 products requiring a unique and very hard-to-get raw material that comes from a rain forest in South America and has a ten month lead time. Fine – forecast those products out for ten or more months and keep the rest at the Planning Time Fence.

Upcoming Events  July 20,2006 Bob Stahl Keynote Address:S&OP: Balancing Demand & Supply Rockport, Maine Sponsor: Chain Link Fence Mfgs' Institute Sept.14, 2006 Tom Wallace Workshop: Executive S&OP: Top Managements Handle on the Business Portland, OR Sponsor: Portland APICS Sept. 19, 2006 Tom Wallace Forum: Executive Business Forecasting Tucson, AZ Sponsor: The Institute of Business  Forecasting Oct. 26, 2006 Tom Wallace Workshop: Executive S&OP: Balancing Demand and Supply Orlando, FL Sponsor: The Institute of Business Forecasting Oct. 29-30, 2006 Tom Wallace & Bob Stahl Exhibit: APICS Int'l Conference Booth 724 Orlando, FL November,  2006 Tom Wallace Workshop: Executive S&OP: Top Managements Handle on the Business San Jose, CA Sponsor: Santa Clara Valley APICS February, 2007 Tom Wallace  Workshops: Executive S&OP Auckland, New Zealand Sponsor: SmartChain Consulting March, 2007 Tom Wallace & Phil Heenan Workshops: Executive S&OP: Top Management's Handle on  the  Business Australia: Melbourne, Sydney, Brisbane, Perth Sponsor: Phil Heenan Consulting and APICS Australia Order the Set Now $119.50

Other uses for forecasts – for S&OP, financial projections, capacity planning, and the like – can almost always be solved by forecasting at aggregate levels such as product families, sub-families, or other aggregate groupings.   Our belief is that forecasting in aggregate is far superior to forecasting in detail across a long horizon. Why do we say this? It’s because detailed forecasting far into the future represents a non-value adding activity. It takes more work and yields poorer results.   Questions Arise First, if you don’t forecast in detail far into the future, how do you get future capacity requirements? Answer: you forecast in aggregate.   Effective users of Sales & Operations Planning routinely forecast 15, 18, or more months into the future at an aggregate level: product families, sub-families, and so forth. They make simplifying assumptions about resource consumption such as: •  producing 1,000 units of Family A calls for 500 production hours in Dept. C. •  making 10,000 cases of Family L requires 18,000 liters of material from Supplier S.   In this way, companies use a rough-cut capacity approach to project medium to long term requirements for capacity and material – and then sharpen it up with the specifics as the requirements move inside the Planning Time Fence. Second question: won’t the forecast be less accurate if the forecast is done in aggregate? Answer: we believe the aggregate forecast will be more accurate than the sum of the detail. We say this for two main reasons: 1.    Projecting detailed history into the future assumes that the future will be like the past: same patterns, same trends, and so forth. This is not always a valid assumption. 2.    Focusing on the detail diverts attention from the big picture: changes in the consumer preferences, competitive challenges; impact of new products; market share position, and so on. Forecasting volumes leads to focusing on those kinds of issues and thus yields a better forecast. In studying statistics, we learned about the distinction between precision and validity. Forecasting mix far into the future feels precise; it gives the illusion of accuracy. Forecasting volume is valid. For these reasons, Lean Forecasting is the way to go. To see more on this, click here. Doesn’t it make sense to spell out the ground rules before the games begin? Sure it does. All major sports have rule books (we suspect the NFL’s is four volumes long) and businesses should do the same thing. We're referring here specifically to the Master Scheduling Policy. It spells out roles and responsibilities, who owes what to whom, who is empowered to make decisions under what circumstances, and so on. Do you have one in your company? If not, should you? For more on this, click here. Due out this fall Sales & Operations Planning - The Executive's Guide.  Receive Notification of the release of this new title. Click here to view our entire bookstore.