FORESIGHT, Issue 40

Description

Winter 2016

Special Feature: Collaborative Forecasting and Planning

Beyond S&OP and IBP to Enterprise Planning and Performance Management by Dean Sorensen
Foresight’s Spring 2015 issue featured the article “From Sales & Operations Planning to Business Integration” by Mark Moon and Pete Alle. Although the terms Sales and Operations Planning (S&OP) and Integrated Business Planning (IBP) are often used interchangeably, Moon and Alle consider IBP to be the more comprehensive label, since it implies engagement beyond sales and operations to bring finance and senior leadership into supply chain planning. These authors argue, however, that despite good intentions and extraordinary effort, IBP implementations often fail to achieve effective business integration. For better success, they urge changes to organizational structure, processes, and culture. Dean Sorensen builds on their thesis here, outlining a still broader vision of IBP, one that extends beyond supply chain to encompass enterprise planning. He observes that, as complexity rises, capability gaps are exposed in processes that are supported by separate S&OP, financial planning, budgeting, and forecasting applications. He describes how technology innovations can close these gaps by enabling integration of strategic, financial, and operational planning and performance-management processes. He likens the importance and value of these innovations to the financial and operational convergence that gave rise to Enterprise Resource Planning (ERP) two decades ago.

Forecaster in The Field: Dean Sorensen

Beyond S&OP and IBP to Enterprise Planning and Performance Management: A Commentary on the Need for New Technology by Nari Viswanathan (Issue 41)

Articles

1. Bias-Variance Trade-offs in Demand Forecasting by Konstantinos Katsikopoulos, Aris Syntetos
   In supply-chain forecasting, we have traditionally used point forecasts to predict the mean level of demand per time period. In doing so, we place emphasis on finding forecast methods that minimize bias in the forecasts, because forecast bias ultimately leads to either excessive or inadequate inventory levels. This emphasis on avoiding bias, however, can neglect variability in the forecasts. Konstantinos and Aris explain in this article that the neglect of forecast variability is a mistake, because forecast variance is a factor – along with, and of the same importance as, bias – that determines the Mean Squared Error (MSE) of a forecast method, which is often (and possibly too often) used to set safety stocks.
   
2. Sometimes It’s Better to Be Simple than Correct by Stephan Kolassa
   In the preceding article, Konstantinos Katsikopoulos and Aris Syntetos discussed the trade-offs between forecast bias and forecast variance in choosing a suitable forecasting method. Simple methods, they explain, tend to have large bias but low variance, while complexity reduces bias but at the expense of increasing variance. In short, simple methods might be preferable to complex methods, even if the resulting forecasts are biased. Stephan Kolassa now extends their argument to show that even if we know what the correct model is for the data to be forecast – that is, even if we know the seasonal pattern and other influencing factors for a time series – it may still be better to choose a simpler model, one that excludes one or more of these variables. This is a fascinating takeaway.
3. Sales Quota Accuracy and Forecasting by Mark Blessington 
   Sales-forecasting authority Mark Blessington examines an often overlooked topic in this field: the efficacy of different approaches used by companies to set sales quotas. He compares (a) annual versus quarterly quota-setting accuracy and (b) the use of exponential smoothing versus traditional quota-setting methods. Mark’s findings shed new perspectives on quota-setting policies.
4. Book Review by Steve Morlidge
   Superforecasting: The Art and Science of Predication by Philip E. Tetlock and Dan Gardner
   
5. TechCast’s Top Ten Forecasts by Owen Davies, William Halal
   Derived from the collective judgment of 130 expert forecasters, scientists, and academics from a wide variety of fields, TechCast Global (www.TechCastGlobal.com) forecasts technological innovations, social trends, and wild cards for strategic planning in business and government. In this article, Owen Davies and William Halal present their top ten strategic forecasts with the biggest impact over the next decade.