Correctly understanding and applying forecasting principles can dramatically boost profitability as a business’s supply chain becomes more efficient.

According to the supply chain management industry association SAPICS, forecasting is easily one of the most misunderstood and poorly applied business practices in South Africa, and around the world, today.

Liezl Smith Busines six specialist consultant and SAPICS director says, “If a business improves its forecast accuracy by as little as 5%, it is likely to translate into an inventory reduction of between 10% and 15%.”

Smith was the first South African Certified Professional Forecaster (CPF), a certification that is awarded by the US-based Institute of Business Forecasting & Planning (IBF).

Misunderstood

Smith adds, “Typically, only around one in five business people are able to say what their forecast accuracy is. Even then, most struggle to explain how they get their figures, because they are guessing. Yet, when the numbers are correct, it forms the benchmark for improvement.”

Inventory accuracy

According to Smith, “A classic error that forecasters make is using aggregates to arrive at their forecast accuracy. Working on aggregates across products can lull one into a false sense of security as negative and positive numbers cancel each other out. This means, you could think you are on an 80% forecast accuracy, yet be way lower for individual products.”

“One scary fact is, if your forecast accuracy is 35%, you are out by an alarming 65% – which potentially means lost sales, or money wasted on managing inventory and even wastage of old stock.”

Making your facts and figures work for you

Concludes Smith “There are two types of forecasts: wrong ones and lucky ones. But, by learning how to exploit the information available to you, it is possible to ‘improve one’s luck’ consistently.”

Workshops

SAPICS regularly hosts forecasting workshops where participants work through practical examples in an effort to hone their forecasting skills, effectively helping them to transition from ‘guessing’ to ‘knowing’. “And the more you improve your process, the ‘luckier’ you will get.”

•             For more info on upcoming Forecasting workshops, please visit www.sapics.org.za