Lean Forecasting

Why can’t Sales give us a decent forecast?  Paraphrasing George E.P. Box, “All forecasts are wrong, some are useful.”  If forecasts are wrong, then why forecast?  Supply chain lead time is often much longer than the customer is willing to wait, and so the business carries inventory somewhere, and inventory is a waste.  The Lean approach to crush lead time and make-to-order isn’t always possible and so we may need to build on speculation, or at the very least buy raw materials.  Even after making customer consumption visible to all, reducing lead time, creating flow, using pull systems, increasing velocity and reducing variation, and establishing a multi-echelon collaborative and process disciplined environment you may still need to ‘predict’ future demand volume, product mix, and/or seasonality. So whether you want to or not, or have a formal forecasting method or not, somewhere in your purchasing and planning world someone is anticipating what the customers may want and is placing supply orders or adjusting inventory levels or rearranging workloads. Lean Forecasting Principles:

  1. Measure forecast accuracy, seek root cause for inaccuracies, and strive for continuous improvement of the forecasting process
  2. Aggregate (family) forecasts are always more accurate than individual SKU’s – plan families, build SKU’s on pull
  3. The ‘best’ forecast is a customer order, the next best is to replenish what the customer just consumed
  4. Forecast accuracy usually degrades the further out – try to match the forecast period to the supply lead time
  5. Relentlessly seek to crush supply lead time and variation (mix and volume), and eliminate the need for near term forecasts
  6. Drive waste out of the forecasting process

A collection of current thinking on Lean Forecasting:

Lean and Forecasting from Michael Balle’s Gemba Coach Column

What Happened to Materials Management and Forecasting Part II by Bill Waddell at Evolving Excellence

Building a Lean Fulfillment Stream by Martichenko and von Grabe   .