One of the favourite question of Supply Chain interviewers for the ‘often-nervous’ interviewees is “How do you choose a forecasting method for an FMCG company or a Cement company?” Most interviewees babble about errors (calculated statistically assuming a stable universe!) and dashboards.
To be honest, this is question that has befuddled most of the CXOs of this age and the ancient (tribal heads, emperors, high priests, etc). No machine or a crystal ball, for that matter, can accurately predict what future will bring in terms of rains, prosperity or war and finally how much soap with 44% saturated fat, mixed with rose essence will sale in Jhumaritalaiyya in October 2016!
Coming to statistical forecasting; those provide good guidance to the future, while accounting for trends, influencing factors like advertisement, GDP growth, monsoon performance, etc. Supply Chain heads and CIOs must understand that choosing a statistical forecast method is not a ‘once-a-lifetime’ activity. Data must be analysed for two main aspects; viz overstocking and shortage. Any statistical forecast will cause either of the two results above. One needs to make a decision on which of the two results is acceptable for a specific product line/ group and how much. Choice of the forecasting technique then becomes easier. Revisiting the data every 3 months to determine the extent of oversupply or shortage, and fine-tuning the forecasting method to correct the imbalance is required to keep the supply chain on its toes, figuratively. This approach will help the Supply Chain heads to bid good-bye to crystal gazing.