{"id":7000,"date":"2018-06-13T09:51:08","date_gmt":"2018-06-13T13:51:08","guid":{"rendered":"https:\/\/demand-planning.com\/?p=7000"},"modified":"2018-06-13T09:58:03","modified_gmt":"2018-06-13T13:58:03","slug":"sop-demand-planning-the-multiple-view-approach","status":"publish","type":"post","link":"https:\/\/demand-planning.com\/2018\/06\/13\/sop-demand-planning-the-multiple-view-approach\/","title":{"rendered":"Bob Stahl&#8217;s Multiple View Forecasting"},"content":{"rendered":"<span class=\"cb-itemprop\" itemprop=\"reviewBody\"><p><strong>During these turbulent and unpredictable times, forecasting is less fun than ever! But forecast we must, if we are to manage our companies competitively and well. The question is, \u201chow to forecast as best we can?\u201d.<\/strong><\/p>\n<p><span style=\"font-weight: 400;\">Back in 2002, I co-authored with Tom Wallace our first of six books,\u00a0<\/span><b><i>Sales Forecasting-A New Approach<\/i><\/b><span style=\"font-weight: 400;\">. That book contributed to the progression of our current day practices. At that time, the standard practice was to forecast the future in a highly granular fashion (<a href=\"https:\/\/ibf.org\/knowledge\/glossary\/sku-stock-keeping-unit-256\">SKU<\/a> by customer) for the full <a href=\"https:\/\/ibf.org\/knowledge\/glossary\/sales-and-operations-planning-sop-240\">S&amp;OP<\/a> horizon. In the book, we called this approach &#8220;forecasting in the suicide quadrant\u201d (Chapter #9). We called it that because it had two serious flaws: <\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The detail produced a fog of complexity where we could&#8217;t see the forest for the trees.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">It was totally customer-centric, failing to see or observe any market trends and patterns. <\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Shortly thereafter, forecasters began to add up the detail and look at the bigger &#8211; the volumetric picture organized by product or production family. That represented a real improvement but it was still a customer-centric forecast, not reflecting market tends and patterns.<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-medium wp-image-7002\" src=\"https:\/\/demand-planning.com\/wp-content\/uploads\/2018\/06\/Sales-Forecasting-A-New-Approach-Wallace-Stahl-232x300.jpg\" alt=\"Sales Forecasting A New Approach, Wallace, Stahl\" width=\"232\" height=\"300\" srcset=\"https:\/\/demand-planning.com\/wp-content\/uploads\/2018\/06\/Sales-Forecasting-A-New-Approach-Wallace-Stahl-232x300.jpg 232w, https:\/\/demand-planning.com\/wp-content\/uploads\/2018\/06\/Sales-Forecasting-A-New-Approach-Wallace-Stahl-768x993.jpg 768w, https:\/\/demand-planning.com\/wp-content\/uploads\/2018\/06\/Sales-Forecasting-A-New-Approach-Wallace-Stahl-792x1024.jpg 792w, https:\/\/demand-planning.com\/wp-content\/uploads\/2018\/06\/Sales-Forecasting-A-New-Approach-Wallace-Stahl-1200x1552.jpg 1200w, https:\/\/demand-planning.com\/wp-content\/uploads\/2018\/06\/Sales-Forecasting-A-New-Approach-Wallace-Stahl.jpg 1237w\" sizes=\"(max-width: 232px) 100vw, 232px\" \/><\/p>\n<p><span style=\"font-weight: 400;\">Today, best practice for volumetric forecasting projects the future by market-facing families, with multiple views. This results in a <a href=\"https:\/\/ibf.org\/knowledge\/glossary\/consensus-forecast-56\">Consensus Forecast<\/a> that predicts the volumetric future with reasoned, reasonable, credible, and transparent logic. That forecast is then translated to production-family volumes through the use of simplifying assumptions about mix.<\/span><\/p>\n<h2>The Principle of Multiple View Forecasting<\/h2>\n<p><span style=\"font-weight: 400;\">In this piece, I\u2019d like to focus on understanding the principle of \u201cmultiple view\u201d forecasting.\u00a0<\/span><span style=\"font-weight: 400;\">Remember the story of three blind people exploring an elephant \u2013 one discovered a rope (the tail), one a hose (the trunk), and one a wall (the side). It was not until they shared and compared their views that the picture of an elephant became apparent \u2013 no single view was <\/span><span style=\"font-weight: 400;\">sufficient.<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignright size-medium wp-image-7006\" src=\"https:\/\/demand-planning.com\/wp-content\/uploads\/2018\/06\/Suicide-quadrant-Bob-Stahl-Tom-Wallace-1-300x231.jpg\" alt=\"Suicide quadrant Bob Stahl Tom Wallace\" width=\"300\" height=\"231\" srcset=\"https:\/\/demand-planning.com\/wp-content\/uploads\/2018\/06\/Suicide-quadrant-Bob-Stahl-Tom-Wallace-1-300x231.jpg 300w, https:\/\/demand-planning.com\/wp-content\/uploads\/2018\/06\/Suicide-quadrant-Bob-Stahl-Tom-Wallace-1-768x591.jpg 768w, https:\/\/demand-planning.com\/wp-content\/uploads\/2018\/06\/Suicide-quadrant-Bob-Stahl-Tom-Wallace-1-1024x788.jpg 1024w, https:\/\/demand-planning.com\/wp-content\/uploads\/2018\/06\/Suicide-quadrant-Bob-Stahl-Tom-Wallace-1-600x462.jpg 600w, https:\/\/demand-planning.com\/wp-content\/uploads\/2018\/06\/Suicide-quadrant-Bob-Stahl-Tom-Wallace-1-800x615.jpg 800w, https:\/\/demand-planning.com\/wp-content\/uploads\/2018\/06\/Suicide-quadrant-Bob-Stahl-Tom-Wallace-1.jpg 1140w\" sizes=\"(max-width: 300px) 100vw, 300px\" \/><\/p>\n<p><span style=\"font-weight: 400;\">Forecasting is much the same way. People in different functions within an organization have different views about the future \u2013 they see things through differen<\/span><span style=\"font-weight: 400;\">t pr<\/span><span style=\"font-weight: 400;\">isms. Each is credible in its own way, but no one view tells the whole story. We might describe these multiple views as follows:<\/span><\/p>\n<p><b>1. Market View<\/b> <span style=\"font-weight: 400;\">\u2013 this is expressed by Market-Facing families (for an example, see insert), correlated to total markets based on leading market indicators. \u00a0Total market data and predictions are often gotten from outside third parties. The company\u2019s market-based forecast is then derived from mathematical regression and\/or anecdotal correlations to this market forecast. It serves to look beyond the customers to the markets they serve, and is thereby not limited by the customers\u2019 knowledge, bias, or shortcomings. This market perspective is used as one input to the company\u2019s volumetric forecast.\u00a0<\/span><\/p>\n<p><b>2. Customer View<\/b> <span style=\"font-weight: 400;\">\u2013 typically expressed in <a href=\"https:\/\/ibf.org\/knowledge\/glossary\/sku-stock-keeping-unit-256\">SKU\u2019s<\/a>, end items, or orders by customer indicating what each customer will need for the next three to six months. In some cases it\u2019s the customer\u2019s schedule (make-to-order), and in others it\u2019s the company\u2019s forecast (make-to-stock) of what they think their customers will need &#8211; or some combination of the two. This information is used primarily as an input to the Master Scheduling practice. Aggregated into the Market-Facing Families, it is a second input to developing the company\u2019s volumetric forecast.<\/span><\/p>\n<p><b>3. Historical View<\/b> <span style=\"font-weight: 400;\">\u2013 this projects the company\u2019s history into the future by a mathematical model. This modeling projects the aggregate Market-Facing Families for the volumetric planning horizon. A technique called \u201cFocus Forecasting\u201d (fitted forecast) is typically used. This modeled future reflects the past based on statistical trends and patterns that can be observed and modeled. It is a third input to the company\u2019s volumetric forecast. \u00a0<\/span><\/p>\n<p><b>Note:<\/b><span style=\"font-weight: 400;\"> There may be other \u201cviews\u201d that come to into play such as brand view and channel view etc. <\/span><\/p>\n<h2>Reconciling These Various Views<\/h2>\n<p><span style=\"font-weight: 400;\">Each of these views could be quite different, each having individual credibility, but based on different perspectives. Sometimes one or more of these may have greater credibility or weight than another. Reconciling them into a single collaborative view is a <\/span><b><i>human activity<\/i><\/b><span style=\"font-weight: 400;\"> that is necessary to get all functional departments operating from the same set of demand numbers. This has become a best-in-class volumetric forecasting practice. The objective is to develop a <a href=\"https:\/\/ibf.org\/knowledge\/glossary\/consensus-forecast-56\">Consensus Forecast<\/a> that is <\/span><i><span style=\"font-weight: 400;\">reasoned, reasonable, credible and fully transparent, <\/span><\/i><span style=\"font-weight: 400;\">\u00a0that everyone buys in to. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Step #2 of the monthly executive <a href=\"https:\/\/ibf.org\/knowledge\/glossary\/sales-and-operations-planning-sop-240\">S&amp;OP<\/a> process is known as Demand Planning, where volumetric forecasting by Market-Facing Family is performed. Reconciliation of the multiple views into a <a href=\"https:\/\/ibf.org\/knowledge\/glossary\/consensus-forecast-56\">Consensus Forecast<\/a> is the final activity of this step. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">This reconciliation activity is sometimes called the <\/span><i><span style=\"font-weight: 400;\">Demand Agreement Meeting<\/span><\/i><span style=\"font-weight: 400;\"> (or the DAM Meeting for short?). Although conceptually simple, this is not an easy meeting to run, because it brings into sharp focus the potentially divergent views of <\/span><b>sales<\/b><span style=\"font-weight: 400;\"> (the customer view), <\/span><b>marketing<\/b><span style=\"font-weight: 400;\"> (the market view), <\/span><b>new product<\/b><span style=\"font-weight: 400;\">, <\/span><b>supply chain<\/b><span style=\"font-weight: 400;\">, and <\/span><b>finance<\/b><span style=\"font-weight: 400;\">, etc. into sharp contrast. Attending this meeting are executive representatives from each discipline within the business.<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignright wp-image-7007 size-full\" src=\"https:\/\/demand-planning.com\/wp-content\/uploads\/2018\/06\/Puts-and-takes-forecasting-Bob-Stahl.jpg\" alt=\"Puts and takes forecasting Bob Stahl\" width=\"707\" height=\"488\" srcset=\"https:\/\/demand-planning.com\/wp-content\/uploads\/2018\/06\/Puts-and-takes-forecasting-Bob-Stahl.jpg 707w, https:\/\/demand-planning.com\/wp-content\/uploads\/2018\/06\/Puts-and-takes-forecasting-Bob-Stahl-300x207.jpg 300w, https:\/\/demand-planning.com\/wp-content\/uploads\/2018\/06\/Puts-and-takes-forecasting-Bob-Stahl-600x414.jpg 600w\" sizes=\"(max-width: 707px) 100vw, 707px\" \/><\/p>\n<p><span style=\"font-weight: 400;\">Supported by data, the objective of this meeting is to expose disagreement without being disagreeable, arrive at one set of volumetric demand numbers by which to run the business. This becomes the <\/span><a href=\"https:\/\/ibf.org\/knowledge\/glossary\/consensus-forecast-56\"><i><span style=\"font-weight: 400;\">Consensus Forecast<\/span><\/i><\/a><span style=\"font-weight: 400;\">. <\/span><\/p>\n<h2>Applying \u201cPuts &amp; Takes\u201d<\/h2>\n<p><span style=\"font-weight: 400;\">Once reconciliation has been achieved, there is one thing left to do: Compare the <a href=\"https:\/\/ibf.org\/knowledge\/glossary\/consensus-forecast-56\">Consensus Forecast<\/a> (converted to revenue) to the \u201clast call\u201d.\u00a0<\/span><span style=\"font-weight: 400;\">\u00a0If the <a href=\"https:\/\/ibf.org\/knowledge\/glossary\/consensus-forecast-56\">Consensus Forecast<\/a> compares unfavorably to the last call, appropriate actions are then identified to bring the forecast or the last call to where it needs to be. These actions are documented, with progress being tracked in future months. <\/span><\/p>\n<h2><b>Conclusion<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">The best view of the future comes from blending multiple views into one set of demand numbers, called the <a href=\"https:\/\/ibf.org\/knowledge\/glossary\/consensus-forecast-56\">Consensus Forecast<\/a>. This open disagreement and reconciliation should happen routinely as part of the executive <a href=\"https:\/\/ibf.org\/knowledge\/glossary\/sales-and-operations-planning-sop-240\">S&amp;OP<\/a> process, and has become best practice for volumetric forecasting. In the words of one S&amp;OP Manager, \u201c &#8230;because each input has strengths and weaknesses, having all views brought to the table brings about more educated and better forecasts. Typically . . . the more initial disagreement, the better the forecast.\u201d <\/span><\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<\/span>","protected":false},"excerpt":{"rendered":"<p>During these turbulent and unpredictable times, forecasting is less fun than ever! But forecast we must, if we are to manage our companies competitively and well. The question is, \u201chow to forecast as best we can?\u201d. Back in 2002, I co-authored with Tom Wallace our first of six books,\u00a0Sales Forecasting-A New Approach. That book contributed [&hellip;]<\/p>\n","protected":false},"author":5680,"featured_media":7010,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[387,381],"tags":[433,434],"class_list":{"0":"post-7000","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-models-and-methods","8":"category-sop-process","9":"tag-bob-stahl","10":"tag-multiple-view-forecasting"},"_links":{"self":[{"href":"https:\/\/demand-planning.com\/wp-json\/wp\/v2\/posts\/7000"}],"collection":[{"href":"https:\/\/demand-planning.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/demand-planning.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/demand-planning.com\/wp-json\/wp\/v2\/users\/5680"}],"replies":[{"embeddable":true,"href":"https:\/\/demand-planning.com\/wp-json\/wp\/v2\/comments?post=7000"}],"version-history":[{"count":0,"href":"https:\/\/demand-planning.com\/wp-json\/wp\/v2\/posts\/7000\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/demand-planning.com\/wp-json\/wp\/v2\/media\/7010"}],"wp:attachment":[{"href":"https:\/\/demand-planning.com\/wp-json\/wp\/v2\/media?parent=7000"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/demand-planning.com\/wp-json\/wp\/v2\/categories?post=7000"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/demand-planning.com\/wp-json\/wp\/v2\/tags?post=7000"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}