Business Forecasting in the 21st Century

As the marketplace is becoming more dynamic and businessmen are becoming more aware of the importance of forecasting in decision-making, the organizational structure, business philosophy, corporate culture, and level of senior management's support for this function are changing. With that, the landscape of forecasting is changing. Changes are being experienced in corporate culture and business environment, public perception about forecasting, forecasters, approach to forecasting, uses of forecasts and technology. CORPORATE CULTURE AND BUSINESS ENVIRONMENT We are currently experiencing enormous changes in corporate culture and business environment. Command and control strategy for managing business is giving way to autonomous business units with power to develop and implement their own policies. The silo-based strategy is being replaced by collaboration and knowledge sharing not only within an enterprise but also with customers and suppliers. New products are no longer developed in isolation by one department but by a team of experts from different departments. Furthermore, there is now increasing pressure from top management to convert data into knowledge so that better decisions can be made. The current technology has provided massive amount of data, but not enough efforts are being made to translate the data into intelligence. The changes in corporate culture and environment are causing changes in the way forecasts are prepared and communicated. The breaking down of functional silos has given rise to collaboration both within and outside the enterprise. There is now more openness among different functions than ever before. More and more decisions are now made collectively rather than individually. The SO if there is a gap between supply and demand, decide on the action plan to match them; and determine capacity needs. The programs such as VMI (Vendor Managed Inventory Program) and CPFR (Collaborative Planning, Forecasting and Replenishment) grew from the spirit of collaboration. Under both these programs, retailers not only provide access to point-of-sale data but also agree to share information about changes in their store layout, opening and closing of stores, promotional plans, and forecasts. At present, Retail Link, Wal-Mart's electronic data interchange system, provides weekly forecasting data to more than 3500 of its 5000 vendors. If vendors know what is happening on the consumer end, as well as what retailers are planning to do, they can do a better job in preparing forecasts. PERCEPTION ABOUT FORECASTING Perception about forecasting is also changing. Although businesses have been using forecasts all along, they never called them as such. They prepare a budget, which is based on some estimates about the future. They prepare a production plan (how much to produce, and when and where), which is also based on some estimates about the future. In fact, every business decision is based on some expectations about the future. Businesses are now beginning to recognize forecasts and their need in decision-making. Forecasts can be prepared intuitively (based on gut feeling) or systematically using a well-structured procedure. In the past, forecasts were mostly prepared intuitively. With this kind of process, forecasters are less likely to know where they went wrong. But if they were prepared systematically, using set procedures and processes, forecasters would have a better chance of recognizing the problem and then fixing it. More and more companies are now moving in the direction of preparing forecasts systematically. FORECASTERS Forecasting is not new, we have been doing it from time immemorial. What is new is a change in people involved in forecasting. …