Improving Forecasting

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Sales Forecasting and Demand Planning are intrinsically linked, and yet they play within boundaries that are far from well-defined. Efficient and well structured Demand Planning can be an invaluable weapon in facing the challenges posed by market-change – a dramatic example being the fall of the Berlin Wall with the creation of three billion potential consumers, competitors and new capitalists spurring the change from ‘globalisation’ to ‘planetisation.

So is globalisation and planetisation an opportunity or a problem? Until recently, the expansion of international trade presented a clear opportunity for companies to sell the goods not absorbed by the domestic market overseas. Modern means of transport combined with new IT technologies allow the sale of finished products in any country around the world. Globalisation thus presents a clear opportunity for technologically advanced companies that produce large quantities of finished products.

However, Planetisation is a more complex concept than simple globalisation. A planetary economy can manufacture the same product in anypart of the world, while a globalised economy merely permits to sell it anywhere in the world. This being the case, it is clear that planetisation presents a constant challenge for companies who want to compete on the global market. Increasingly they have to find competitive organisational models and new technological solutions in order to gain an edge on the international competition, particularly from countries whose low labour costs put them at a competitive advantage.

It is important to take into account recent developments in consumer habits and social changes. For instance, the internet has broadened the consumer’s horizons, creating a vast array of offers. Moreover, nowadays, most families have multiple incomes, and this has fundamental implications that alter people’s lifestyles and purchasing patterns. These factors impact company organisational models.

A consumer is prepared to visit many shops to purchase a new lap top, whereas, in the case of mass consumption items – like cookies, detergents etc – if a specific brand is not on the shelf, he or she will replace it with a similar one.

The consequences for companies who mass produce consumer items are stark – stock-outs are disastrous, because they nullify the effects of all the company policies preceding the sale: research and development, marketing, production and distribution.

So what has to be done? In this scenario of constant market change, with a rapid pace of technological innovation and changing consumer purchasing patterns, it is essential to focus on forecasting demand. The Demand Planning process is intrinsically involved: it should provide support for decision-making, with analyses and projections

of demand that would correlate and integrate predictive algorithms with information provided by the sales network and by sociologists, monitoring changes in consumer purchasing patterns with a careful eye to the competition’s strategies.

This means that forecasting techniques should be based on the active collaboration of all the departments involved: sales, marketing, logistics, research and development. They must share data and information collected in the national and international markets and establish, in concert, a demand plan that is essential to the activation of all the processes along the supply chain: there’s no room left for ‘solos’, it’s time to ‘play together’.

Dr Domenico Netti is director of logistics, Luigi Lavazza SpA, Chairman of AILOG and member of the ELAm Board

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