What Is "One-Number" Forecasting?
One-number forecasting aims to align all forecasting stakeholders, from commercial teams to supply chain, on one consensus forecast.
Supply chain leaders understand the importance of accurate forecasting to drive business decisions. However, there are often disconnects between forecasts from different departments, causing misaligned decisions that can impact profitability. This is where the concept of one-number forecasting comes in. Based on insights from Chakri Gottemukkala, Co-Founder and CEO of o9 Solutions, Inc., we will explore the challenges of creating a one-number forecast and the best practices for achieving it.
Understanding the Complexity of Different Forecasts
Ideally, each forecasting stakeholder—from sales to finance—aligns on one consensus forecast. However, due to departmental silos and technology limitations, each department tends to develop its own forecast based on its own assumptions, in its own language, and at a different level of detail. Historically, many organizations have not had the technology to reconcile these disconnected forecasts, often leading to inter-departmental friction at best and suboptimal decision-making at worse.
“Historically, because of functional silos and technology limitations, each department has developed its own forecast, and they never get connected. As a result, supply chain and financial decisions, and sales decisions are often at odds with each other. When they try to reconcile those decisions, it's a big war between the different stakeholders.”
Chakri Gottemukkala —
Co-Founder and CEO of o9 Solutions, Inc.
Instead, many organizations are augmenting their collaborative forecasting processes with next-generation technology that accommodates each function’s language, assumptions, and level of detail and reconciles them in one model. The technology then automatically disaggregates to the appropriate level required for supply chain decisions.
One-number forecasting is a process that aims to account for this complexity by aligning all departments on one consensus forecast. However, one-number forecasting cannot come at the expense of each department’s unique lens. As discussed in the article Getting “Granularity” Right in Demand Planning, attempting to accommodate each department’s unique needs with a lower-common denominator of granularity rarely works.
“The process and technology need to have the ability to enable the supply chain to have its own lens of that forecast to disaggregate it to what it requires for driving supply chain decisions. The technology needs to enable the sales team to take that view of the forecast as required by market, account, and product line.”
Best Practices for Achieving One-Number Forecasting
1. Establish Cross-Functional Collaboration
The key to achieving a one-number forecast is cross-functional collaboration. This means that all stakeholders need to be involved in the forecasting process, from commercial to finance teams. Each department needs to understand the other's requirements and constraints and work together to develop a forecast that meets everyone's needs.
2. Develop a Common Language
To achieve a common forecast, it's important to develop a common language that all stakeholders can understand. This means that each department needs to use the same metrics and terminology when discussing the forecast.
3. Leverage Technology
Technology can play a crucial role in achieving a one-number forecast. It can enable stakeholders to access the same data and metrics and provide a platform for collaboration and consensus-building.
"The technology needs to enable the different lenses of the forecast at different levels of detail that these different stakeholders need to have."
4. Monitor and Adjust
Creating a one-number forecast is an ongoing process. It's important to monitor the forecast regularly and make adjustments as needed. This means stakeholders must be open to feedback and willing to change the forecast as new information becomes available.
One-number forecasting can help align sales, supply chain, and finance decisions and improve the accuracy of business forecasts. However, achieving a one-number forecast requires cross-functional collaboration, a common language, the right technology, and ongoing monitoring and adjustment. By following these best practices, planning organizations can create a one-number forecast that supports the needs of all stakeholders and drives business success.
1.Creating a one-number forecast can help align sales, supply chain, and finance decisions and improve the accuracy of forecasts.
2.Achieving a one-number forecast requires cross-functional collaboration, a common language, the right technology, and ongoing monitoring and adjustment.
3.Each department needs to understand the other's requirements and constraints and work together to develop a forecast that meets everyone's needs.
4.Technology can play a crucial role in achieving a one-number forecast by enabling stakeholders to access the same data and metrics and providing a platform for collaboration and consensus-building.
5.It's important to monitor the forecast regularly and make adjustments as needed. Stakeholders must be open to feedback and willing to change the forecast as new information becomes available.
So Chakri, the modern best practice is to try and get to one number forecasting. Well, what does that mean? That's a great question. It's a very often repeated mantra, one number forecast.
So what it actually is referring to is the fact that there are different stakeholders in the company for the forecast. There are different forecasts in the company: For example, there is a sales forecast, there's a supply chain forecast and there's a finance forecast. Often these forecasts are completely misaligned, causing sales and supply chain decisions to be disconnected. And eventually that has impacts on the P&L.
So the question is, how do we create a one number forecast that aligns sales, supply chain and finance? But to understand the complexity of the problem. Let's first understand why there are different forecasts. Sales is using the forecast to drive commercial decisions, i.e. investments in marketing and sales investments by product line, by brand, by market by account.
Supply chain is using the forecast to drive supply chain decisions, which are at a different level of detail. It's by supply chain location Its by potentially by SKU stock keeping unit that you're building to a forecast. The financial forecast is at a different level. What they're required is what they need to report to the external stakeholders, and that's at a different level by product line and business unit, by brand, by market, etc.
So they are different stakeholders. Each have a need for a forecast to support their decisions. But all these forecasts are at different levels of detail for different purposes. And what has happened historically is because of the functional silos and technology limitations, each one has developed their own forecast and they never get connected.
And as a result, supply chain and financial decisions and sales decisions are often at odds with each other. And when they try to reconcile those decisions, if there is a big war between the different stakeholders. So the idea is to get to a one number forecast. And what that really is talking about is the need to get to one view of what the market forecast is at some common level between sales, supply chain and finance, agreed to that number as the plan or the forecast at the common level.
But then the process and the technology needs to have the ability to then enable the supply chain to have its own lens of that forecast or disaggregated to what it requires for the down supply chain decisions. And take that one number, a common forecast that technology needs to have the ability to enable the sales team to take that view of the forecast as they're required by market and by account and by product line and similarly, finance. So the one number is really referring to the collaboration and consensus that we need to arrive at a common level between the sales supply chain and finance organisation.
But the technology needs to enable the different lenses of the forecast at different levels of detail that these different stakeholders need to have. And that's really the challenge in creating a one number process and one number system.
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