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What is the impact in sales for a 1% forecast accuracy improvement?


Ivan Yerena

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Ivan Yerena

We know that a 3% improvement in OSA (on-shelf availability) prompts a 1% increase in sales so does anyone have a similar metric for forecast accuracy?

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Nick Lynch

Hi Ivan,

Good question and I think the answer has to start with "It depends..."

The 3% OSA impact on sales is an interesting example. Intuitively we can understand that better OSA is likely to help sales. The baseline OSA and baseline sales level will impact the result.  If OSA is poor then improvements have greater effect.  As you get to higher levels of OSA then the effect on sales typically starts to diminish. It's not a linear effect.

The same is true for forecast accuracy. Improving poor accuracy baselines can have a very positive impact on sales. But, similarly, when you get to higher levels of accuracy the impact becomes less.  A really big "It depends..." statement really applies here: It depends on what you do with that increased forecast accuracy. 

For example - if you take the improved accuracy and push that through the MEIO/safety stock calculations to reset inventory levels that can impact OTIF and therefore OSA.  However, that has limits and most will experience a plateau here. If you are still executing based on forecast there will still be a chunk of that which is driven by error not accuracy. The effort required to further improve accuracy versus the gains received don't balance.  That's also a challenge as corporate targets tend to accumulate year on year.  What worked last year may not be enough for this year etc.

Other systematic approaches are needed to push through the limits that accuracy alone has.  For example, what can you do with your end-to-end planning set up to increase service (OTIF, OSA etc) when increases in forecast accuracy are just not sustainable. Is this accuracy just at finished goods? What about upstream into the BOM's and BOD's?

Strategic buffers, proper decoupling and apply the right planning methods along the chain can start to impact lead-times, agility, service level etc which can positively impact sales potential.

So, not a direct answer to your question but if increasing sales if THE strategic goal then several tactics are needed.

Hope that helps.

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