The paper was presented at the International Logistics Conference “Logistics 2002 – Flexible supply chains – concepts, experiences, challenges”. Poznań, May 14-15, 2002.
Introduction
The following observations are the result of nearly ten years of monitoring logistics processes in companies involved in the manufacturing and sale of fast-moving consumer goods. Although these specific companies encounter particular difficulties resulting from the high dynamics of sales volume changes, the conclusions drawn do not claim to be absolutely universal.
1. The sales forecasting process
Forecast – an imperfect tool
A sales forecast is an essential source of information for preparing logistics plans: material procurement plans, production plans and schedules, and distribution plans for manufactured products. A forecast is usually not accurate. Therefore, if we assume that the task of logistics is merely a simple conversion of the numbers contained in the forecast into the aforementioned plans using known raw material consumption rates, machine efficiency, and others, then the only way to achieve good results in the logistics department would be to create forecasts that perfectly reflect future events.
Since absolutely certain forecasting methods do not exist, one must accept the fact that forecasts are inaccurate and seek logistics planning methods that account for the possibility of even significant deviations of the company’s actual sales results from the assumed premises.
Creating a forecast and its accompanying logistics plans in a modern enterprise is a process of building flexible systems for responding to deviations of reality from the forecast. The value added by logistics in an enterprise lies in ensuring the company’s smooth operation in accordance with changing market trends. No one is satisfied with the explanation that a bad forecast is responsible for the poor quality of logistics performance, resulting in low order fulfillment levels, uneven and suboptimal use of production capacity, or excessive or insufficient inventory.
Building the quality of the forecasting process
Despite the low accuracy of forecasts, they remain the foundation of logistics planning. However, the essence of the forecasting process does not boil down only to the numbers contained in the forecast. Forecasting is a process. The quality of this process does not boil down solely to the accuracy of the forecast. Many other qualitative aspects are of fundamental importance for building and properly executing logistics plans in accordance with the philosophy of a modern forecasting and planning system in an enterprise described above. These include:
– division of responsibility for the forecast,
– ensuring proper forecast formats,
– developing a method for measuring forecast accuracy,
– ensuring a method for converting the sales forecast into a supply chain demand forecast.
Responsibility
Responsibility for the forecast rests with all participants in the forecasting process. Attempts to assign responsibility solely to logistics and creating special positions for people specializing in creating forecasts do not seem to be a sound practice. This automatically releases the creators of the forecast premises and their subsequent executors, i.e., the Marketing and Sales departments, from responsibility for proper participation in the forecasting process. At least these three functions should participate in creating and accept responsibility for the forecast. Marketing is responsible for long-term market strategy and promotional campaigns, i.e., significant events affecting sales volume. Sales is responsible for current sales results and trade promotions. Logistics, on the other hand, is responsible for creating and executing logistics plans. The realization of a forecast created with the participation of the sales department should be the goal of that department – a commitment to sell the company’s products in the forecasted quantity and at the anticipated time. A joint forecast is also the only forecast in the company. There should not be separate sets of numbers, such as sales targets that would be incompatible with the forecast. In that case, simply assigning responsibility for the forecast to the sales department can already bring a significant improvement in its accuracy. High accuracy, however, will not result from some special gift of predicting the future – it will simply be the effect of reliable execution of the sales plan flowing directly from the forecast. Joint responsibility for the forecast also facilitates cooperation between the aforementioned departments in the event of a need to take actions aimed at adapting the forecast to the company’s operating conditions, i.e., creating a so-called constrained forecast. For example – sometimes solving the dilemma of a temporary lack of production capacity due to the forecast exceeding production capacity is much easier, less risky, and less costly through minor changes in marketing or sales plans than through, for example, overtime work, outsourcing, or building and maintaining inventory.
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