2011 Forecasting Performance Benchmark Study
Key Findings
Forecasting consumer product sales remains exceptionally challenging. Despite the soft economy in 2010, the CPG industry maintained sales volumes and kept forecast error and bias at 2009 levels. However, weekly Demand Planning error for the industry is remarkably high at 48%, especially considering the number of well-established products and billion dollar brands. Though promotions and new products add forecasting complexity, there is clearly room for improvement. As expected, bias remains positive, reflecting the optimistic nature of the CPG industry; it was up slightly from last year to 5%, perhaps in response to economic indicators showing signs of improvement in 2010.
- Promotional volume jumped about 75% in 2010 as companies looked to drive sales by offering consumers additional value. Contrary to conventional wisdom, promotional periods are actually forecast as accurately as non-promotional periods for the same items. Perhaps this is due to the extra time demand planners spend on promotions. Not surprisingly, the bias is considerably higher during promotions.
- New products remain hard to forecast with weekly item/location error rates of 65%, compared to 46% for existing products.
- Demand Sensing continues to provide a consistent step change in forecast accuracy for all scenarios, including promotions and new products. For the combined 2009-2010 period, Demand Sensing reduces average weekly error by 40%.
- Outdated mathematics and optimistic marketing departments continue to undermine the performance of Demand Planning. This highlights the opportunity for a structured approach to forecasting based on additional demand signals and new mathematics.
- MAPE is the correct measure for supply chain performance since it is the error that Product Supply contends with. However, insight from the report raises questions regarding MAPE as the proper metric to evaluate the performance of Demand Planning because it may not properly reflect the value add by planners. Using the dataset as a resource, Terra plans to evaluate a number of different metrics in the future editions of the study.
By providing a truly comparable benchmark for the CPG industry, we hope you find the study helpful in your pursuit to improve forecast accuracy. We would like to thank ConAgra Foods and Procter & Gamble for their leadership in this program.
