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How to use advanced demand planning to increase forecast accuracy

advanced planning

Demand Planning (DP) is the process of creating a forecast of market demand for a company’s products or services. This is crucial for most businesses as it provides visibility into the future and drives supply. Striving for the best forecast accuracy is usually the main goal of Demand Planning. The less uncertainty there is, the better the ability to make supply planning decisions. Moreover, a better forecast accuracy can be converted to higher profits.

We’d like to demonstrate why companies should strive for better forecast accuracy, what the consequences of incorrect forecast are, how to alleviate possible drawbacks and also how to improve overall forecast accuracy. This look at Demand Planning underlines the importance of capturing true demand versus sales history, discusses forecast hierarchy and the optimal forecast generation level.

The optimal forecast generation level is regarded as the cornerstone of good DP design. The “best” possible forecast accuracy is required at the hierarchy level where planning (decisions) are made. It does not necessary mean that the forecast has to be generated at that level. Aggregation, forecast generation and disaggregation, together with the right forecasting methods, could provide for the best forecast accuracy at the “decision” level.

A proper set-up of composite forecast, inclusion of non-quantitative causal factors, pre set-up analysis and post-implementation diagnostics are important DP best business practices and key factors in any successful design and the usage of Demand Planning.

Let’s examine the technical and process aspects of Demand Planning. It is vital that people with the right skill sets, knowledge and experience are acknowledged as fundamental factors for the successful design, implementation and usage of a Demand Planning solution.

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For a more detailed discussion on advanced demand planning contact Dr Tomek Jekot at tjekot@deloitte.co.za or Stephen Povey at spovey@anglogoldashanti.com or Clinton Houston at chouston@deloitte.co.za

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David Graham

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