Category Archives: Forecast

COMMUNICATIONS: YOUR NUMBER ONE FORECASTING TOOL

communicationsWhat would you say is one of the most important skills that any forecaster can have and yet still be one of the most under-rated skills in almost any position?  That’s right, communications skills.  That is because Forecasting is universally considered a “technical position” which requires technical skills, not a soft skill like communications expertise.  The problem with this assumption is that it is absolutely wrong.  Forecasters spend most of their time interacting with other people to gather, confirm, or disseminate information.  If you stop and think about it, there are very few groups within an organization that the forecasters do not interact with.  And the more involved a company becomes in external Supply Chains the more complicated this information web becomes.  Forecast accuracy is an issue in most companies and how much worse will the apparent inaccuracies be if information is being mis-communicated or misunderstood at any point in the process?  Just to be clear on this point, the technical skills are important but the results are dependent on the information gathered (GIGO) and the knowledge distributed out from the forecasting process.  In the end, it’s not just about the tools, it’s about the people.  However, it is important to understand that an effective communicator does not need to be a great speaker.  For one thing communications is a two way process and when you are speaking you just have to be able to speak in a way that people can understand – Clearly, simply and effectively.

One of the most important points about communicating (listening or speaking) is to clearly understand the WHY of the communications.  If all parties clearly understand the why of the interaction they are more likely to end up at a useful understanding.  For example, if the forecaster wants to meet with the sales group about historical data in order to understand the reasons for demand variability and the sales group think the reason for the meeting is to criticize them about that same variability, are they likely to come to a successful conclusion?  Not likely.  But why would the two groups understanding be at such odds with each other?  After all, the request for the meeting clearly stated that the reason for the meeting was “to discuss variability of historical demand”.  Surely everyone would understand that to mean the forecast group is trying to achieve a better understanding in order to improve forecast accuracy.  In this example, the communications was clear and simple, just not effective or understood.  It is important for the communicator to understand who they are interacting with, what their “world view” or “language” is, and how they are likely to understand any communications.  This is where tools such as Myers-Briggs Type Indicator can be extremely useful.  These types of profiles can give you a hint on how people will interact with you.  The emphasis here is on HINT as it certainly will not be 100 percent accurate, but as forecast professionals we are comfortable with non perfect accuracy.  As an example, and remembering that this is a really “broad brush” scenario, extraverts tend to process verbally which means that in a meeting they will tend to keep talking until they reach a decision at which point they start repeating themselves.  Introverts tend to process internally which means they tend not to say much until they come to a decision at which point they will say it, once, quietly.  If you are facilitating that meeting it is part of your task to control the extraverts and to catch the introverts so everyone recognizes the actual important decision points.

In addition to the verbal part of communications you need to be aware of the non verbal component of communications which according to Prof Albert Mehrabian (University of California) can contain up to 55% of the message.  This is particularly important when the verbal and non verbal components of the message conflict (you have my complete attention, please ignore the fact that I am looking everywhere except at you).  What about eye contact, hand movement, changes in volume or tone?  What about personal space?  Different cultures have very different comfort zones when it comes to personal space which, if ignored can distract people strongly from the discussion at hand.  Generational differences can also have a very direct effect on communications.  Boomers and Millennials have very different communications methodologies that can lead to mis-understandings if not accounted for.  Boomers tend to be much happier with direct person to person contact while Millennials tend to be more comfortable with indirect communications such as social networking and message texting.  When you combine this preference for indirect communications with the various issues around body language this can easily lead to communications issues.  If, as mentioned earlier, up to 55% of the message can be by body language then texting or email is missing many of the nuances available in face to face meetings.  Perhaps this is one of the drivers of the increasing usage of emoticons and acronyms (OMG).   Even the world view of Boomers and Millennials are quite different.  Boomers tend to be very concerned about Work / Life Balance while Millennials think about Work / Life Integration.  A subtle difference but very important to how and when each group works.

One other point about non verbal communications; Many large companies are stressing the use of electronic tools such as teleconferencing rather than traveling to meetings.  While undeniably cheaper it also cuts out all the body language aspect of the communications as well as making it easier to multi task (no one can see you checking your email) which takes your attention away from the communications process thereby making it less effective.  Even video conferences are not as effective as having everyone actually in the same room and that is without even considering technical issues such as poor sound quality.  Sometimes it IS cost effective to get on the plane and go see someone.

Again, effective communications requires two way communications which means participants need to listens as well as talk.  Listening is NOT something that most people do well as they would rather listen to themselves then anyone else.  This makes tools like Active Listening into critical communications tools.  As the famous quote by Robert McCloskey goes: “I know that you believe you understand what you think I said, but I’m not sure you realize that what you heard is not what I meant.”  Active listening is more than just making sure you hear what is being said.  It is also about focusing on the other person, not interrupting them or thinking ahead to what your reply will be.  It is about repeating back what you heard in your own words to confirm a mutual understanding (reflective listening).

So how can you improve your communications skills?  There are groups such as Dale Carnegie or Toast Masters that you can join to learn some of these skills.  You can take some Sales and Marketing courses.  This will not only help your communication skills, it will help you to understand their world better.  Take Trainer the Trainer type courses (APICS has a wonderful one).  But most importantly, learn to walk a mile in the other person’s shoes.  It’s only when you understand someone else’s needs, wants and desires that you can truly communicate with them with minimal misunderstandings.

If you would like to discuss more about Communications and how to improve it in your organization, I would be more than happy to meet with you and to explore this in more detail.  Please feel free to contact me at edwhite@jadetrilliumconsulting.com.

If you would like to read more about this and other topics check out my other posting on my website – http://jadetrilliumconsulting.com

Is it Your Fault The Forecast Is Wrong?

crystal ballWe all know that the first principle of forecasting is that it is always wrong.  The second principle is that it is more important to understand what the estimate of error is.  It is this estimate that we use to plan for risk, inventory levels and production planning.  While it is true that the forecast is always wrong one of the important points about this error that often gets overlooked is that while most of the time it is not your fault, some of the time IT IS YOUR FAULT.  Most of the time the error is due to the fact that, no matter how we try to improve our information, math, and processes, ultimately, forecasting is just another term for crystal ball gazing.  If we truly could calculate a correct demand number every time it would be called calculating not forecasting.  No matter how good we are, something is going to come along and knock all our lovely processes totally out of kilter and we will just have to find a way to deal with the aftermath.  My point here though, is that sometimes we cause the errors to happen.  Definitely not deliberately but by not consider certain consequences or by not having a process that is flexible enough to deal with non-normal circumstances.  This year most of us who live in southern Ontario and many other parts of North Eastern North America are living a perfect example of uncontrollable forecast error and I am wondering how many organizations will deal with this properly in future forecasts.  I would even go so far as to suggest that in this particular industry there is going to be a lot of excess inventory in the system come Spring of 2015.

So what am I talking about?  SALT.  The weather this year has been truly abysmal which has led to a significant and on-going shortage of salt for peoples driveways,  Most stores ran out in late December, there was none to be found for weeks and while it is available now, the supply is noticeably sporadic and undependable.  Is this the fault of the salt producers or the retail channels they distribute through?  Absolutely not.  Nobody was calling for the type of weather we have had (and if you do not believe that call any friends you may have in the Atlanta area and ask them how their weather has been).  Normally in Southern Ontario the retail outlet as a whole start out the season with total stock levels of most of a year’s usage plus additional levels of inventory available at the producers level.  In this case that supply was totally used up in the first couple of storms because they were more ice storms than snow.  So was the forecast demand wrong?  Absolutely, but it was not their fault because the external factors were too far from normal to anticipate the amount of true demand.

So why am I predicting high excess stock levels next year?  A couple of reasons such as the fact that averages are just that, averages, which means that when you have a data point significantly off the mean then it is unlikely the next data point will also be that far off the mean in the same direction.  In layman’s terms, it is unlikely next year will be as bad as this year.  Most forecast systems, however, are based on history with a higher emphasis on recent history.  The recent history in their systems is going to show a huge uptick in actual demand for this year and if they do not smooth out that jump in the historical record the system IS going to forecast higher than normal demand for next year.  Also, people being people they are going to lean toward a higher number during the qualitative part of the process as well.  Once burnt, twice shy type of thing.  All of this is going to lead to higher levels of salt in the system for next year and if the weather is closer to normal (which is very likely) they will be left with a large excess stock situation in the spring.  If this actually does happen it will be an example of an incorrect forecast being the fault of the forecast process rather than true demand variance (you creating the error).  The key here is that the forecast is the wrong tool for dealing with significant, uncontrollable circumstances.  In this case it is actually a job for Risk Management.  The industry needs to look at how they reacted to the weather and the shortfall, what other options they have, and how they could do better.  The retail channels cannot carry enough inventory to deal with all circumstance or to store large quantities of items like salt during the off season.  The challenge is to keep inventory low, without stocking out, and having the flexibility to react as necessary.  For those of us in Supply Chain Management, just a normal day at the office.

Having issues with your inventory?

Is your forecast driving your inventory issues?  Do you understand what other Drivers are biasing your inventory levels to move up or down?  Do you need help understanding and getting control of your inventory?  Contact Ed White at Jade Trillium Consulting to discuss whether we can help your organization and how best to proceed.

Hope you enjoyed this posting.  Talk to your friends and co-workers about their experience and thoughts on this topic, especially what it means for your organization.   And, as always, I would love to hear back on your (and their) thoughts.  Just fill in the comment box below along with your contact information to let me know what you think.