SCDigest Editorial Staff

SCDigest Says:

This shows that there is still a long way to go in developing quality Sales and Operations Planning (S&OP) processes within companies, which should serve to reduce forecasts bias that benefits individual functional needs. What do you say? Send us your comments here

The most recent issue of The Journal of Business Forecasting, published by The Institute for Business Forecasting (IBF), is out with its sixth annual benchmark issue, which looks at a wide range of survey data on various forecasting practices and results.

The data is compiled based on hundreds of surveys of attendees at IBF conferences around the US. While therefore not scientific in the results, the data do represent a reasonable perspective on what is happening in the forecasting/demand planning function.

SCDigest here reviews one section of the benchmark results, focused on forecasting processes. The data was summarized by Chaman Jain of St. John’s University.

Highlights of the benchmark survey:

Management Support: 54% of respondents (all industries combined) said that their management is highly supportive of the forecasting process/function, and another 45% said management is somewhat supportive, leaving only 1% who say they receive little management support. For unclear reasons, the companies from the Food and Beverage industries indicated they had the strongest level of management support.

Forecasting as a Discrete Function: Perhaps somewhat surprisingly, only 36% of respondents said their companies had a formal forecasting/demand planning function. On average, respondents said their companies had 4.9 full-time forecasters – up from 4.2 in 2006. This seems unlikely to be purely a statistics aberration – SCDigest suspects companies really are adding forecasting resources.

Forecasting Reporting Structure: The survey shows that most of the companies place their forecasting function within Operations/Productions (27%), followed by Independent Forecasting Department (19%) and Marketing (12%). Combining Operations/Productions with Logistics, the percent of forecasting departments units falling under the supply chain is 34% - a bit lower than SCDigest would have guessed. Jain, however, notes that “more and more companies are moving this function out of Finance and putting it in the Supply Chain. The percentage of companies having a function within Finance has gone down from 14% in 2001 to 7% in 2007,” with most of that decline coming from companies moving forecasting under the supply chain.

.(Supply Chain Trends and Issues Article - Continued Below)

Conflict of Interest: A full 60% of respondents said that in developing a final forecast, there was some bias on the part of managers providing input from various other functions (sales, marketing, production, etc.), with the strongest response in this direction from the consumer package goods industry. To SCDigest, this shows that there is still a long way to go in developing quality Sales and Operations Planning (S&OP) processes within companies, which should serve to reduce forecasts bias that benefits individual functional needs.

Consensus Forecasts: The opportunity for improved S&OP was further highlighted by the survey finding that just 49% of companies use a single consensus forecast. The rest still operate with multiple internal forecasts.

Forecast Horizon: 36% of respondents forecast one year out, versus 34% who forecast over a horizon longer than one year. 16% have only a quarterly horizon, and 13% forecast for only the following month.

Forecast Buckets: Not surprisingly, a plurality of 38% forecast in monthly time buckets, versus 17% that use weekly forecasts, 14% that do quarterly forecasts, and a surprising 22% that just use annual forecasts.

Production Lock-Down: 45% of the companies in the survey (all industries combined) lock their production schedule one month out, versus 20% at three months and 16% at two months. 9% claimed to lock product schedules more than 6 months out.

Forecast Monitoring: 72% of companies consistently monitor, and 67% of them revised forecasts on a monthly basis.

Consensus Meeting: According to the survey, 76% of companies have some form of consensus forecast meeting. It’s unclear, but we assume this means everything from full blown S&OP to much “lighter’ versions of agreeing to a forecast. We will note this result seems somewhat contradictory to the 49% who said they developed a consensus forecast. Either the data is not right, or 27% of companies that have a consensus meeting nonetheless revert back to use of multiple internal forecasts (which just may be true).

Sales and Operations Planning: Consistent with the above result, 70% of companies say they use an S&OP process in their companies. This says nearly all of the 76% of companies that have a consensus meeting do so in the context of S&OP.

Collaborative Planning, Forecasting, and Replenishment (CPFR): 43% of companies (all industries combined) have taken such an initiative, and is growing. 38% said they used CPFR in 2006 and just 26% in 2005. Note, however, this doesn’t indicate the extent of CPFR usage, just that a company is using it somewhere.

It’s hard to say, but we suspect the IBF conferences have a reasonable mix of companies highly experienced/mature in the forecasting process, some in the middle, and some much newer to forecasting. As such, the survey results are likely to be reasonably representative of companies overall.

What’s your reaction to this benchmark data? Anything not ring true? Anything surprise you? Let us know your thoughts at the Feedback button below.