Is one-number forecasting a new worst practice?

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The one-number forecasting concept has been debated for years.

Advocates argue that having different groups within the same organization working to different forecasts is insane. You can't have the supply chain building to X, the sales force selling to Y, and the financial folks counting on revenue of Z. This is an invitation for disaster.

But is the imposition of a single forecast number across the whole organization any less insane?

In a SupplyChainBrain blog "There Is No Magic Number for Demand Forecasting," Robert Bowman chronicles discussion of this topic at the recent Institute of Business Forecasting conference. Citing presentations from Nestle, Combe Inc., Syncro Distribution, and Merck, Bowman concludes we should "forget about" fixed one-number forecasting, but we still need to achieve internal and external alignment through the planning process. This is the right conclusion.

The forecast should be an unbiased best guess of what is really going to happen in the future, but we need to recognize (and take into account) the uncertainty in that one number. As Patrick Bower, senior director of corporate planning and customer service at Combe Inc. (and winner of IBF's 2012 award for Excellence in Business Forecasting and Planning) pointed out, what's needed is "banding" around the one number, to indicate the likely range of possible outcomes. (This same point was made by Charles ReCorr in his article "What Demand Planners Can Learn From the Stock Market" as discussed in the previous The BFD blog.)

So the one-number forecasting concept can be rejected because we really should be using at least three numbers: the point forecast, and the upper and lower bounds. This is simple recognition of the reality that our forecasts aren't going to be perfect, and we need to be prepared. As Jonathon Karelse, president of Syncro Distribution, hammered home the point, "You need to plan appropriately for the high side and the low side."

Rejection of one-number forecasting is not the first step toward anarchy. It is instead the rejection of, as Bowman puts it, "A simple answer to a complex problem."

 

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About Author

Mike Gilliland

Product Marketing Manager

Michael Gilliland is a longtime business forecasting practitioner and currently Product Marketing Manager for SAS Forecasting. He is on the Board of Directors of the International Institute of Forecasters, and is Associate Editor of their practitioner journal Foresight: The International Journal of Applied Forecasting. Mike is author of The Business Forecasting Deal (Wiley, 2010) and editor of the free e-book Forecasting with SAS: Special Collection (SAS Press, 2020). He is principal editor of Business Forecasting: Practical Problems and Solutions (Wiley, 2015) and Business Forecasting: The Emerging Role of Artificial Intelligence and Machine Learning (Wiley, 2021). In 2017 Mike receive the Institute of Business Forecasting's Lifetime Achievement Award. In 2021 his paper "FVA: A Reality Check on Forecasting Practices" was inducted into the Foresight Hall of Fame. Mike initiated The Business Forecasting Deal blog in 2009 to help expose the seamy underbelly of forecasting practice, and to provide practical solutions to its most vexing problems.

2 Comments

  1. Doug Jennings on

    Michael,

    I read your book just over a year ago and I remember there was a section that talked about the differences between a top down ,middle out, and bottom up forecast. I am trying to reference that / you in my proposal to build a middle out process. I loved the concept, and I reference your book often. Can you tell me where that section is in the book, or can you elaborate on that topic outside of the book?

    FYI; I can’t view this blog from my work computer as our IT department blocks the sight. Can you email me your response?

    Thanks,
    Doug

  2. Pingback: Visualizing a better alternative to one-number forecasting - The Business Forecasting Deal

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