Forecasting — bridging the gap between sales and manufacturing

Abstract

Conflicts frequently occur between demand forecasts that help sales and marketing to reach their targets and the demand forecasts that help manufacturing to produce the right amounts of products at the right time at a minimum cost level. This gap is a serious problem especially in industrial firms with production lead times that are (much) longer than customer order lead times: production to order is not possible, so a close coordination w.r.t. forecasts between sales and manufacturing is needed. In many companies, this coordination has not been given much attention and, as a consequence, separate sales and manufacturing forecasts are used. This results in high inventories and in spending (too) much effort in trying to reach the customer service level required by the market. This paper is based on experiences within several practical situations, but in particular on an extensive study for an international producer of a specific type of consumer goods (like detergents, fashion, foods and electronics). Within this large international company “Rahanu”, forecasting plays an important role for many years. In this period, each of the Operating Companies (OCs) of Rahanu has developed her own forecasting procedure. The experiences and difficulties with forecasting in these OCs was the basis of the development for one demand forecasting strategy for both sales and manufacturing. This strategy will further improve the quality of the demand forecasts and therefore reduce costs and improve customer service. Based on this case study, we put forward some suggestions to bridge the gap between the different demand forecasts of sales and manufacturing. This is done, not by improving statistical forecasting techniques, but by combining relatively simple statistical techniques with improved cooperation and coordination between the sales department and the manufacturing department. In this way one common demand forecast is created, that is accepted by the production as well as the sales department.