Preface
Back in May 1996, I was a (relatively) young assistant professor who had joined the faculty at the University of Tennessee almost three years earlier, following my graduate school years in Chapel Hill, North Carolina. My field was, and is, marketing. I had worked for several years in sales with IBM before going back to school to get my Ph.D., and I was doing research and teaching in various areas of sales force management. That day in May 1996, we had just finished the spring semester, and I was looking forward to a summer of writing and revising articles, playing a little golf, and hanging out with my young sons. I remember so clearly sitting in my office, minding my own business, when the most prominent of our senior faculty stopped by, stuck his head in the office, and asked me a question that changed the course of my career. That senior faculty member was Tom Mentzer, and the question he asked was, “Would you like to do some work with me on forecasting? I’ve got a company that needs a forecasting audit, and I’m wondering if you’d like to help out.” Well, when you’re an assistant professor, three years into your career, and someone with the stature of Tom Mentzer stops in and offers you an opportunity to work together, no one in his right mind would say no. So I said, “Sure, Tom. What’s forecasting?” He smiled, walked back to his office, and returned a few minutes later with about 20 of the articles he had written on the subject, 20 or so articles that others had written on the subject, and a couple books. He suggested that I read as much of that pile as I could in the next week, because we were due in Kingsport, Tennessee, a week later to begin doing a forecast audit for Eastman Chemical Company.
So Tom and I, along with two of our doctoral students—John Kent and Carlo Smith—spent the next few weeks driving the 90 miles back and forth from Knoxville to Kingsport, and thus began my education into forecasting. We completed our assessment for Eastman Chemical, and then in quick succession completed forecasting audits for DuPont Agricultural Products, Hershey Foods, Michelin Tire, and AlliedSignal Automotive Products. In the 16 years since that day in May, I’ve learned a lot. Tom and I worked with a lot more companies—34 companies in total—before his tragic and untimely death in 2010. I then joined forces with my colleague Paul Dittmann and others, and audited another eight companies, bringing the total to 42. Along with a variety of co-authors, I’ve written a lot of articles about forecasting, and joined forces with Tom Mentzer on a second edition of his well-known and well-respected forecasting textbook. I’ve also taught forecasting and demand planning to a lot of students—undergraduate and MBA students at the University of Tennessee, the Bordeaux Ecole de Management in Bordeaux, France; and working forecasters and demand planners at companies such as Union Pacific Railroad, Corning, Orbit Irrigation Products, BASF, 3M, and Honeywell. I’ve traveled the world learning about forecasting practices and teaching executive audiences—from various places in the United States, to Canada, Mexico, China, Switzerland, France, the Netherlands, England, Ireland, Singapore, Taiwan, and Belgium. I learned a lot about best practices, and I learned a lot about worst practices.
Interestingly, in the course of that journey, I came to see forecasting in a different light from the light that Tom saw it in. I came to see that demand forecasting in and of itself was not particularly helpful for a company. I came across many companies that were pretty good at forecasting, but they still struggled with their inventories, fill rates, and costs. The reason they struggled with these problems was not that they were not forecasting well. Rather, it was because they were not doing a good job of translating their forecasts into good business decisions. Sales and marketing were not communicating well with their supply chain colleagues, and vice versa. In other words, I came to see that forecasting wasn’t the only thing that companies needed to work on. They also needed to work on those integrating processes that facilitate communication between the demand side of the firm (sales and marketing in a manufacturing context, and merchandising in a retailing context) and the supply side of the firm (the supply chain organization, or logistics, procurement, and operations).
This realization fit in extremely well in my home department at the University of Tennessee. I am a proud member of the Department of Marketing and Supply Chain Management. It might seem strange to some people that an academic department in a College of Business Administration would be a combination of marketing and supply chain management. At Tennessee, these two units were put together back in the 1970s for purely cost-saving reasons—save a couple of administrative assistants if you smash two departments together. For many years, those two units didn’t have much to do with each other. But once again, I invoke the name of Tom Mentzer, who was an extremely prominent scholar in both marketing and supply chain management. He was at various times in his career the president of both the Council for Logistics Management (now the Council for Supply Chain Management Professionals) and the Academy of Marketing Science. His larger-than-life personality, and the force of his convictions, helped our department to see the synergy between marketing and supply chain management, and thanks to his leadership, we developed a vision of business practice that we refer to as Demand and Supply Integration (DSI). Tom helped us get started developing this vision, and since his passing, those of us who remain at Tennessee have continued to develop and refine this DSI vision. We’ve written articles, both academic and practitioner-oriented, that articulate our thoughts about how demand (sales and marketing) and supply (supply chain) need to be integrated through culture, processes, and tools, for the betterment of the enterprise as a whole. This book is meant to articulate an important element of that integration, namely the processes that I refer to as DSI (Demand/Supply Integration) and the demand-side contribution to that DSI process, namely the Demand Forecast. In this way, I am attempting to take forecasting out of the realm of statisticians and bring it into the realm of strategic decision makers. Thus, as the title of this book suggests, Demand/Supply Integration, or DSI, is the key to excellence in demand forecasting. As I say in later chapters, an accurate forecast and 50 cents will buy you a cup of coffee. Without the DSI process as the foundation, then the demand forecast isn’t worth the paper it’s written on.
What This Book Is, and What It Is Not
The following table provides a summary of what you can expect from this book, and what you cannot expect.
A few summary comments:
• If you’re looking for a textbook that teaches statistical forecasting, in all its nuances, this ain’t it. Many other excellent books have been published that will do that much better than I can. However, if you’re looking for practical advice on how to successfully combine the insights from statistical forecasting with the insights from qualitative judgment, you’ll find that here. You’ll also find some pitfalls of using the wrong statistical tools, and some of the problems associated with use of simple statistical methods that sometimes do more harm than good.
• In the same vein, if you’re looking for a book that articulates every possible way to measure forecast accuracy, this also ain’t it. Once again, I focus on practical advice for working forecasting professionals, giving instruction about how to measure performance, but also insight about why you measure performance.
• This book is written for practicing managers. It is intended to be, above all else, practical and useful for those practicing managers. It’s based on what I’ve seen that works well, and what I’ve seen not work well. There are no hypotheses tested in this book—just practical advice for managers.
• This book is mostly about forecasting, but in the context of Demand/Supply Integration. The first chapter is dedicated to Demand/Supply Integration, and the last chapter brings the reader back to that super-process, but everything in-between is intended to give managers of forecasting processes practical advice on how to do demand forecasting better.
How This Book Is Organized
I begin and end this book with a discussion of demand/supply integration. Chapter 1, “Demand/Supply Integration,” articulates the goals of DSI and explains how DSI is different from Sales and Operations Planning, or S&OP. I articulate common aberrations from the ideal state of DSI, and discuss an ideal sequence of subprocesses that need to be in place to support the “super-process” of DSI. Chapters 2 through 7 focus on demand forecasting. In Chapter 2, “Demand Forecasting as a Management Process,” I make the point that demand forecasting is a management process, which must be planned, executed, and controlled like any other management process. In this chapter, I introduce concepts such as the definition of a forecast, the definition of demand, the forecasting hierarchy, and the information technology systems that support forecasting excellence.
Chapters 3 and 4 are dedicated to forecasting techniques. Chapter 3, “Quantitative Forecasting Techniques,” is a discussion of quantitative, or statistical, forecasting, with emphasis placed on the “why,” rather than on the detailed “how.” Chapter 4, “Qualitative Forecasting Techniques,” discusses the process of enriching the statistical forecast with input that comes from those individuals who might have insight about how the future might look different from the past. Chapter 5, “Incorporating Market Intelligence into the Forecast,” expands the discussion of qualitative insight begun in Chapter 4 by discussing the role that market intelligence plays in the forecasting process, as well as the useful contribution that can come from customer-generated forecasts.
In Chapter 6, “Performance Measurement,” I discuss the importance of, and the steps required, to measure forecasting performance. Like any other management process, if you can’t measure it, you can’t manage it. Chapter 7, “World-Class Demand Forecasting,” then describes, in considerable detail, the vision we have developed at the University of Tennessee of world-class forecasting. This chapter allows you to do a self-assessment of your own forecasting processes, and see where you should focus your re-engineering efforts. The book concludes with Chapter 8, “Bringing It Back to Demand/Supply Integration: Managing the Demand Review,” where I bring the discussion back the demand/supply integration, or DSI. It covers the demand review, which is the culmination of the forecasting process, and how to prepare for, and effectively manage, that critical piece of DSI.
One brief note on terminology: Throughout this book, I wander back and forth between the pronouns I and we. Although I am officially the sole author of this book, it’s a very collaborative effort. Hundreds of colleagues—ranging from other faculty at the University of Tennessee, to doctoral students, to people at the companies with whom we’ve worked, to other students—have helped me form the ideas documented in this book. There are times when I feel compelled to use we, because so many of these ideas are the results of so much collaboration.
So with all that said, let’s get into it. I hope you enjoy this guide through demand forecasting in a demand/supply integration context. If you find things you don’t like, or don’t agree with, or are simply wrong, let me know. And, Go Vols!
Mark Moon
Knoxville, TN