A statistical forecast provides several key benefits over a manual forecast including reducing the time spent creating and maintaining forecasts so planners can focus on value-added activities. It also helps reduce uncertainty, anticipate changes, and increase communication and knowledge across departments. A statistical forecast is independent from departmental biases and can be created at the appropriate level of product hierarchies. It also allows forecasts over long time horizons, encourages exception-based forecast review rather than manual cell-by-cell review, and can help create a center of excellence for demand planning.

1. BENEFITS OF A STATISTICAL FORECAST

2. A Statistical Forecast enables Demand Planners to spend less
time creating, entering and maintaining Forecast numbers
and to concentrate on Value-Add Propositions such as:
Meet Market Demand, Manage Lead-Times, Reduce Inventory, Avoid Over-
Production, Minimise Stock-Outs, Support Budget, Increase Buying Power,
Schedule Resources, Guide Company Strategy, Define Promotions, Guide Price
Structure, Measure Awareness of Demand, Drive Continuous Improvement
and
Create Stability in the Supply Chain
•Reduce Uncertainty: Predict & measure Future demand to reduce costs & increase responsiveness
•Anticipate Change: Plan for future change such as economics, competitors, lifecycle, mergers, crisis etc.
•Increase Communication: Between all departments and affiliates for successful S&OP / IBP
•Increase Knowledge: Project production capacity, future costs & revenues, compare forecast and actuals
to Budget, Evaluate Marketing Initiatives, decipher correlations between casuals and actuals.
Benefits of a Statistical Forecast

3. Benefits of a Statistical Forecast
A Systematic, Statistically generated
Forecast will help mitigate these typical
Demand Planning Pitfalls:
• Time consuming Excel spreadsheets
• Effort of predicting every combination
• Forecasting with Bias (such as Budget as basis)
• Overreacting to last month actual
• Forecasting Dominated by Sales / Marketing Tactics
• Changing to round numbers
• Not using the best (latest / most accurate data)
• Disconnected Manual entry
• Short Horizon Forecasting
• Long Cycle Times to complete tasks
and realise these
benefits:
Common Data
Less Repetition
Fewer Errors
Shorter Cycle Time
Fresher Data
Automation
Improved Accuracy
Best Information & Practice
Reporting gives Knowledge
Exception Management
Improved Decisions
Enable Planning Growth
Bespoke Solution
Suitable & Robust
Collaboration
Ease of Use
Happier Planners

4. Statistical = Planning Maturity Growth
Basic Maturity: No integrated sales forecasting, demand planning or replenishment processes. Information produced is not
very accurate or timely, owners and planners may create the plans as a side-task and are not directly in touch with buyers and
customers. Low maturity and little planning awareness.
Part of a Planning Strategy to improve Supply Chain People, Process, Technology, Information, Performance
and to enable the Company Vision.
A Statistical Forecast is part
of a Strategy to increase
Planning Maturity
Strategic Maturity: Integrated sales forecasting with demand planning &
replenishment. Owners and Planners are close to customers and using an efficient
process. Key Performance Indicators are measured, reported and rewarded.
Forecast are trusted throughout the business. High maturity and good planning
awareness.
Innovative Maturity:Collaborative sales forecasting and demand
planning process that utilises all the key people, the latest data and the best
systems. Information collected and used includes elements such as Point of
Sale & Internet of Things. KPI's are measured, reported, rewarded, reviewed
and changed as needed. Re-forecasts and re-planning is frequent and within
the shortest possible cycle time. Forecasts are trusted and used throughout
the business. Class-leading maturity with high planning awareness.
Regular Maturity:Process are becoming more integrated and incorporate wider sets of data. Planners
have training and more of the right people are involved in producing plans. Accuracy is not improving enough
though, and the plans and forecasts are still not timely. Average maturity with growing planning awareness.

5. Statistical = An Independent Creation
Forecasts usually have Departmental bias: “For example, if residing in logistics, the forecast will be
SKU orientated. If residing in marketing , the forecast will be product line orientated. If residing in
sales, the forecast will be sales territory orientated. If residing in finance, the forecast will be dollars
orientated. Of course, each of these functional areas has a different time horizon orientation that
will affect the orientation of the forecast”*
A Statistically generated Forecast can be used to
derive a forecast that is free from Departmental Bias.
* Sales Forecasting Management by Mentzer and Bienstock
Individual:
Independent:
Concentrated:
Negotiated:
Consensus:
Each Department creates and uses its own forecast.
A Committee is formed with individuals from each Department to create one forecast.
Each Department creates a forecast and then representatives gather to create one forecast.
One Department develops the forecast, and all other Departments use it.
Each person creates and uses their own forecast.

6. Appropriate Level of Creation
 Structure the Hierarchies within Dimensions:
 Provide the ability to view data at different levels (Reporting, Review & Signoff):
 Forecast Ownership – Distribution:
 Create different Statistical Forecasts
Hierarchy Levels are groupings of data that are used to:
A Bayesian Statistical Forecast can be created at the most
appropriate level of the Hierarchy independent from any
maintenance or reporting level restrictions.
 Structure the Hierarchies within Dimensions:
 Provide the ability to view data at different levels (Reporting, Review & Signoff):
 Forecast Ownership – Distribution:
 Create different Statistical Forecasts
Year
Quarter
Month
Day
Calendar
Highest
Lowest
Level
Low Mid
High Mid
All Items
Group 1
Group 2
Item 2
Item 3
Item 1

7. No Limits to the Forecast Horizon
Jan Feb Mar Apr May Jun Aug Sep Oct Nov Dec
Jul Jan Feb Mar Apr May Jun
Match Orders to Forecast
Chase Outstanding orders
Review and Maintain Forecasts
Apply Events to smooth Stock-Outs
KPI
Process: Frequency:
Review & maintain fc's: Monthly
Chase outstanding orders: Monthly
Match orders to forecasts: Daily
Adjust Stock-outs Monthly
A Manual Forecast will always take more effort to build and maintain
over a long horizon. The longer the Horizon the greater the effort.
Statistical Engines will create Forecasts as far as desired!
A Typical Planning Horizon

8. Encourages Exception Management
Exception management is "the process whereby the instances where intervention is required are
highlighted to the planner thus reducing the number of intersections that need to be reviewed.”
500 Items * 300 Locations * 3 Business Groups over 8 Months = 3,600,000 Intersections!!!
Month 1
Loc1 Loc2 Loc3 Loc4 Loc5
Item 1 1 2 3 4 5
Item 2 6 7 8 9 10
Item 3 11 12 13 14 15
Item 4 16 17 18 19 20
Item 5 21 22 23 24 25
MONTH 1
Loc1 Loc2 Loc3 Loc4 Loc5
DC1 DC2 DC1 DC2 DC1 DC2 DC1 DC2 DC1 DC2
Item 1 1 2 3 4 5 6 7 8 9 10
Item 2 11 12 13 14 15 16 17 18 19 20
Item 3 21 22 23 24 25 26 27 28 29 30
Item 4 31 32 33 34 35 36 37 38 39 40
Item 5 41 42 43 44 45 46 47 48 49 50
Intersections
Statistical Forecasts are not created by Planners in a manual
"row-by-row" way and as a result encourage the use of the
more efficient & appropriate Exception Management
method of Forecast review and analysis

9. Create a Centre of Excellence
Improve Demand Planning Technology with Statistical Forecasting as part of a Planning
Strategy to develop Maturity and drive the development of People, Processes, Information,
Perfomance Management and realise an improved Supply Chain.
An Independent Forecast and an unbiased Modeling team can be a Centre of Excellence for
The Supply Chain. Additional changes could include:
• Creation of a Planning Community (internal)
• Gain greater understanding of Planning Principles & Learn Demand Planning skills
• Encourage an understanding of Company Supply Chain Planning Strategy
• Make Planning part of The Corporate Culture
• Become part of the Planning Community (external)
An Independent Statistical Forecast and a Team of Modelers
to Manage would provide a focal point and a "Centre of
Excellence" for the Supply Chain, Finance and Management.