Managing the forecasting function within the fast moving consumer goods industry

Burger, S. (Stephan) (2003-12)

Thesis (MBA)--Stellenbosch University, 2003.

Thesis

ENGLISH ABSTRACT: Forecasting the future has always been one of the man's strongest desires. The aim to determine the future has resulted in scientifically based forecasting models of human health, behaviour, economics, weather, etc. The main purpose of forecasting is to reduce the range of uncertainty within which management decisions must be made. Forecasts are only effective if they are utilized by those who have decisionmaking authority. Forecasts need to be understood and appreciated by decision makers so that they find their way into management of the firm. Companies still predominantly rely on judgemental forecasting methods, most often on an informal basis. There is a large literature base that point to the numerous biases inherent in judgemental forecasting. Most companies know that their forecasts are incorrect but don't know what to do about it and choose to ignore the issue, hoping that the problem will solve itself. The collaborative forecasting process attempts to use history as a baseline, but supplement current knowledge about specific trends, events and other items. This approach integrates the knowledge and information that exists internally and externally into a single, more accurate forecast that supports the entire supply chain. Demand forecasting is not just a matter of duplicating or predicting history into the future. It is important that one person should lead and manage the process. Accountability needs to be established. An audit on the writer's own organization indicated that no formal forecasting process was present. The company's forecasting process was very political, since values were entered just to add up to the required targets. The real gap was never fully understood. Little knowledge existed regarding statistical analysis and forecasting within the marketing department who is accountable for the forecast. The forecasting method was therefore a top-down approach and never really checked with a bottom up approach. It was decided to learn more about the new demand planning process prescribed by the head office, and to start implementing the approach. The approach is a form of a collaborative approach which aims to involve all stakeholders when generating the forecast, therefore applying a bottom up approach. Statistical forecasting was applied to see how accurate the output was versus that of the old way of forecasting. The statistical forecast approach performed better with product groups where little changed from previous years existed, while the old way performed better where new activities were planned or known by the marketing team. This indicates that statistical forecasting is very important for creating the starting point or baseline forecast, but requires qualitative input from all stakeholders. Statistical forecasting is therefore not the solution to improved forecasting, but rather part of the solution to create robust forecasts.

AFRIKAANSE OPSOMMING: Vooruitskatting van die toekoms was nog altyd een van die mens se grootste begeertes. Die doel om die toekoms te bepaal het gelei tot wiskundige gebaseerde modelle van die mens se gesondheid, gedrag, ekonomie, weer, ens. The hoofdoel van vooruitskatting is om die reeks van risikos te verminder waarbinne bestuur besluite moet neem. Vooruitskattings is slegs effektief as dit gebruik word deur hulle wat besluitnemingsmag het. Vooruitskattings moet verstaan en gewaardeer word deur die besluitnemers sodat dit die weg kan vind na die bestuur van die firma. Maatskappye vertrou nog steeds hoofsaaklik op eie oordeel vooruitskatting metodes, en meestal op 'n informele basis. Daar is 'n uitgebreide literatuurbasis wat daarop dui dat heelwat sydigheid betrokke is by vooruitskattings wat gebaseer is op eie oordeel. Baie organisasies weet dat hulle vooruitskattings verkeerd is, maar weet nie wat daaromtrent te doen nie en kies om die probleem te ignoreer, met die hoop dat die probleem vanself sal oplos. Die geïntegreerde vooruitskattingsproses probeer om die verlede te gebruik as 'n basis, maar voeg huidige kennis rakende spesifieke neigings, gebeurtenisse, en ander items saam. Hierdie benadering integreer die kennis en informasie wat intern en ekstern bestaan in 'n enkele, meer akkurate vooruitskatting wat die hele verskaffingsketting ondersteun. Vraagvooruitskatting is nie alleen 'n duplisering of vooruitskatting van die verlede in die toekoms in nie. Dit is belangrik dat een persoon die proses moet lei en bestuur. Verantwoordelikhede moet vasgestel word. 'n Oudit op die skrywer se organisasie het getoon dat geen formele vooruitskattingsprosesse bestaan het nie. Die maatskappy se vooruitskattingsproses was hoogs gepolitiseerd, want getalle was vasgestel wat in lyn was met die nodige teikens. Die ware gaping was nooit werklik begryp nie. Min kennis was aanwesig rakende statistiese analises en vooruitskatting binne die bemarkingsdepartement wat verantwoordelik is vir die vooruitskatting. Die vooruitskatting is dus eerder gedoen op 'n globale vlak en nie noodwendig getoets deur die vooruitskatting op te bou uit detail nie. Daar is besluit om meer te leer rakende die nuwe vraagbeplanningsproses, wat voorgeskryf is deur hoofkantoor, en om die metode te begin implementeer. Die metode is 'n vorm van 'n geïntegreerde model wat beoog om alle aandeelhouers te betrek wanneer die vooruitskatting gedoen word, dus die vooruitskatting opbou met detail. Statistiese vooruitskatting was toegepas om te sien hoe akkuraat die uitset was teenoor die ou manier van vooruitskatting. Die statistiese proses het beter gevaar waar die produkgroepe min verandering van vorige jare ervaar het, terwyl die ou manier beter gevaar het waar bemarking self die nuwe aktiwiteite beplan het of bewus was daarvan. Dit bewys dat statistiese vooruitskatting baie belangrik is om die basis vooruitskatting te skep, maar dit benodig kwalitatiewe insette van all aandeelhouers. Statistiese vooruitskattings is dus nie die oplossing vir beter vooruitskattings nie, maar deel van die oplossing om kragtige vooruitskattings te skep.

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