Often the best sources of this information are your customers. Indeed, the term “collaborative forecast” refers to a cooperative effort between you and your customers to derive an accurate demand forecast. But, we have found that collaborative information from many customers tends to be far greater than subsequent sales or usage. Why?
- If they give you a high number, they don’t have to put a lot of thought into their estimate. A customer might think, “Well we might use somewhere between 50 and 1,000. Instead of doing a lot of analysis of our incoming orders let’s just tell them we’ll need 1,000.”
- If they give you a high estimate they will be sure you will have what they will need. “We will definitely need 25 pieces so we will tell them we will buy 75 pieces to be sure they have the 25 pieces we will definitely need.”
The problem is that there is usually no penalty for customers overestimating their predicted future use or purchases. After all, customers normally only have to pay for what they actually buy. How can we encourage customers and salespeople to provide the most accurate collaborative information possible?
- Report back the results of collaborative information to the source. At the end of every month show the customer and/or salesperson the difference between their collaborative estimate and actual sales or purchases. For example, say a customer estimates that they will use 1,000 pieces of a particular item each month. And their purchases during each of the past three months have been 25 pieces, 28 pieces and 24 pieces. After reviewing this information with the customer it is doubtful that they will estimate next month’s purchases to be 1,000 pieces. The customer will realize that you are seriously considering their predictions and that they are not ignored by your inventory planners.
- Provide an incentive for accurate predictions. For example, offer customers an incentive if their collaborative forecasts are within 10% of actual purchases. You must realize that accurate collaborative forecasts saves your organization money. You can buy less yet still meet your customer service objectives. Share these savings with your customer. They will have a reason to put some thought into their collaborative forecasts.
Not all customers can provide accurate collaborative forecasts. Some have no way of estimating their future usage of specific products. But, you should utilize incentives for accurate collaborative information whenever a customer has the ability to accurately predict their future needs. There is a lot of cooperation necessary to achieve the goal of effective inventory management. Not only among your employees but with your customers as well.