Weather Forecasting Science and Service Deilvery Gerald Fleming.
The Art and Science of Forecasting
description
Transcript of The Art and Science of Forecasting
Business Forecasting Summit | March 6, 2013Copyright © 2013 The Goodyear Tire & Rubber Company
Copyright © 2013 The Goodyear Tire & Rubber Company
Michael Ryan, The Goodyear Tire & Rubber Company
Business Forecasting: Predictive Intelligence Summit, San Francisco, CA
March 6, 2013
The Art & Science of Good Forecasting:
Combining Math & Analysis with Good Instincts and Sound Judgment
Business Forecasting Summit | March 6, 2013Copyright © 2013 The Goodyear Tire & Rubber Company
Replacement, 70%
OE, 30%
Company
2012 Sales = $20.992 Billion1
1 http://www.goodyear.com/investor/pdf/slides/4qtr12_slides.pdf2 http://www.goodyear.com/investor/pdf/10k/2012_10K_w-exhibits.pdf
Segmentation2
(% of 2012 Units of 164 million)
Consumer, 54%
Commercial, 20%
Other, 13%
Retail, 7%Chemical, 6%
2
Business Forecasting Summit | March 6, 2013Copyright © 2013 The Goodyear Tire & Rubber Company
Consensus Sales Plan
Agreed Sales Plan
18 Month Forward Horizon
E x t e r n a l I n t e r n a l
3
Desired OutcomeScience Art
What is the outcome you would like to achieve?
Art & Science of Forecasting
In Range
of Forecast
Undersold
Forecast
Oversold
Forecast
Profit
(Increases)
(Decreases)
Manage Organizational Knowledge
Forecast
Execution
Forecast vs.
Actual
History
Statistical
Forecast
External
Input
Discussion &
Consensus
Internal
InputScenario
Planning
Feedback
Loop
Business Forecasting Summit | March 6, 2013Copyright © 2013 The Goodyear Tire & Rubber Company
"Forecasting Isn't Rocket Science"
In Rocket Science, parameters are well understood
Processes in place to accurately model impact of variables
Laws of Physics:
• Immutable. Constant.
Within Control:
• Vehicle Mass
• Engine Thrust
• Launch Timing
Model Effects of:
• Wind
• Temperature
• Interaction of Systems
4
Photo: http://history.nasa.gov/ap11ann/kippsphotos/39961.jpg
Business Forecasting Summit | March 6, 2013Copyright © 2013 The Goodyear Tire & Rubber Company
More Variables Than Rocket Science
In Forecasting, variables can be both an art and a science
Law of Supply & Demand:
• Challenging to Fine Tune
Within Control:
• Price
• Supply
Model Effects of:
• Demand
• Supply
• Quantity Sold
5
Illustration: http://en.wikipedia.org/wiki/Supply_and_demand
In some regards, Rocket Science is easier than forecasting
Business Forecasting Summit | March 6, 2013Copyright © 2013 The Goodyear Tire & Rubber Company
Value of Forecast Accuracy
Profit generally improves as forecast accuracy increases
Opportunity to translate the value of forecasting to your business
Undersold:
• Cash
• Inventory
• Capacity
• Utilization
Oversold:
• Lost Sales
• Backorders
• Overtime
• Expediting
In Range
of Forecast
Undersold
Forecast
Oversold
Forecast
Profit
(Increases)
(Decreases)
6
Business Forecasting Summit | March 6, 2013Copyright © 2013 The Goodyear Tire & Rubber Company
“Don't be afraid to give up the good to go
for the great.”
-John D. Rockefeller
7
Business Forecasting Summit | March 6, 2013Copyright © 2013 The Goodyear Tire & Rubber Company
What is a Process?
Having a process to begin with helps focus improvements
Beginning Middle End
Input Transformation Output
Start And Then Some Magic Happens Finish
Definable: Can draw a picture of it…
Predictable: Know what result will be…
Repeatable: Outcome is assured & repeated…
=+ +=
8
Business Forecasting Summit | March 6, 2013Copyright © 2013 The Goodyear Tire & Rubber Company
Create the plan
Measure performance
Incorporate feedback
To optimize effectiveness, make forecasting a closed loop
Good forecasting incorporates a thorough gap analysis
Forecasting Cycle
Forecast
Execution
Forecast vs.
Actual
History
Statistical
Forecast
External
Input
Discussion &
Consensus
Internal
InputScenario
Planning
Feedback
Loop
9
Business Forecasting Summit | March 6, 2013Copyright © 2013 The Goodyear Tire & Rubber Company
Art vs. Science
Part of the science is in understanding what is art
Science: Objective
• Measurable
• Cause and effect
• Selective few
• Quantitative
Art: Subjective
• How to tell “Good” from “Bad”
• What information is useful
• Random many
• Qualitative
500,000
600,000
700,000
800,000
900,000
1,000,000
1,100,000
1,200,000
1,300,000
1,400,000
1,500,000
1,600,000
1,700,000
1,800,000
1,900,000
2,000,000
Jan
-10
Feb
-10
Mar
-10
Ap
r-1
0
May
-10
Jun
-10
Jul-
10
Au
g-1
0
Sep
-10
Oct
-10
No
v-1
0
De
c-1
0
Jan
-11
Feb
-11
Mar
-11
Ap
r-1
1
May
-11
Jun
-11
Jul-
11
Au
g-1
1
Sep
-11
Oct
-11
No
v-1
1
De
c-1
1
Jan
-12
Feb
-12
Mar
-12
Ap
r-1
2
10
Business Forecasting Summit | March 6, 2013Copyright © 2013 The Goodyear Tire & Rubber Company
Manage Organizational Knowledge
External inputs help shape long term forecast
Integrating multiple sources of information
Consensus Sales Plan
Agreed Sales Plan
18 Month Forward Horizon
E x t e r n a l I n t e r n a l
11
Business Forecasting Summit | March 6, 2013Copyright © 2013 The Goodyear Tire & Rubber Company
“Good judgment comes from
experience, and a lot of that comes from
bad judgment”
-Will Rogers
12
Business Forecasting Summit | March 6, 2013Copyright © 2013 The Goodyear Tire & Rubber Company
Qualitative vs. Quantitative
Beware of qualitative masquerading as quantitative
Different ways to describe a simple cup of coffee
Qualitative:
Descriptions
• Big Cup
• Rich Color
• Strong Brew
• Very Hot
Quantitative:
Measurements
• 20 oz. Serving
• Index of Refraction
• X mg Caffeine / Y oz.
• 150º F
13
Business Forecasting Summit | March 6, 2013Copyright © 2013 The Goodyear Tire & Rubber Company
Forecasting as a Collaborative Process
All working to - and collaborating on - the same plan
5/29/2012 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Q1 Q2 Q3 Q4 Full Year
ProductionPlant A 686,533 654,888 809,606 741,601 801,591 945,080 813,117 919,690 925,298 853,779 775,512 721,038 2,151,026 2,488,272 2,658,105 2,350,329 9,647,733
Plant B 1,040,201 992,254 1,226,676 1,123,639 1,214,532 1,431,939 1,231,995 1,393,470 1,401,967 1,293,604 1,175,019 1,092,482 3,259,131 3,770,110 4,027,432 3,561,105 14,617,778
Plant C 416,080 396,902 490,670 449,455 485,813 572,776 492,798 557,388 560,787 517,442 470,007 436,993 1,303,652 1,508,044 1,610,973 1,424,442 5,847,111
Domestic Production 2,142,814 2,044,044 2,526,952 2,314,695 2,501,936 2,949,794 2,537,909 2,870,549 2,888,053 2,664,825 2,420,538 2,250,512 6,713,809 7,766,426 8,296,511 7,335,876 30,112,622
Imports 142,250 135,693 167,751 153,660 166,090 195,821 168,478 190,560 191,722 176,903 160,686 149,399 445,693 515,571 550,760 486,989 1,999,012
Total Production 2,285,064 2,179,737 2,694,702 2,468,355 2,668,026 3,145,615 2,706,387 3,061,109 3,079,775 2,841,728 2,581,225 2,399,911 7,159,503 8,281,996 8,847,271 7,822,864 32,111,634
ShipmentsRegion A 555,663 530,050 655,275 600,234 648,788 764,925 658,117 744,375 748,914 691,028 627,681 583,591 1,740,989 2,013,947 2,151,406 1,902,300 7,808,642
Region B 333,398 318,030 393,165 360,141 389,273 458,955 394,870 446,625 449,349 414,617 376,609 350,154 1,044,593 1,208,368 1,290,844 1,141,380 4,685,185
Region C 689,022 657,262 812,542 744,291 804,498 948,507 816,065 923,025 928,654 856,875 778,324 723,652 2,158,826 2,497,295 2,667,744 2,358,851 9,682,716
Region D 466,757 445,242 550,431 504,197 544,982 642,537 552,818 625,275 629,088 580,464 527,252 490,216 1,462,430 1,691,716 1,807,181 1,597,932 6,559,259
Domestic Shipments 2,044,839 1,950,585 2,411,414 2,208,862 2,387,541 2,814,923 2,421,870 2,739,300 2,756,004 2,542,983 2,309,866 2,147,614 6,406,838 7,411,326 7,917,175 7,000,462 28,735,802
Export 177,812 169,616 209,688 192,075 207,612 244,776 210,597 238,200 239,653 221,129 200,858 186,749 557,116 644,463 688,450 608,736 2,498,765
Total Shipments 2,222,651 2,120,201 2,621,102 2,400,937 2,595,154 3,059,699 2,632,468 2,977,500 2,995,657 2,764,112 2,510,724 2,334,363 6,963,955 8,055,790 8,605,625 7,609,198 31,234,567
Inventory Inv End Q1 Inv End Q2 Inv End Q3 Inv End Q4 Y/E Inv
Warehouse 1 566,776 576,897 589,409 600,870 613,259 627,864 640,431 654,644 668,944 682,139 694,124 705,267 589,409 627,864 668,944 705,267 705,267
Warehouse 2 700,135 712,638 728,094 742,252 757,555 775,597 791,120 808,678 826,343 842,642 857,447 871,213 728,094 775,597 826,343 871,213 871,213
Warehouse 3 533,436 542,962 554,738 565,525 577,185 590,931 602,758 616,136 629,594 642,013 653,293 663,781 554,738 590,931 629,594 663,781 663,781
Warehouse 4 733,475 746,573 762,765 777,597 793,629 812,530 828,793 847,186 865,692 882,768 898,278 912,699 762,765 812,530 865,692 912,699 912,699
Warehouse 5 333,398 339,351 346,711 353,453 360,740 369,332 376,724 385,085 393,497 401,258 408,308 414,863 346,711 369,332 393,497 414,863 414,863
Warehouse 6 466,757 475,092 485,396 494,834 505,036 517,065 527,413 539,119 550,895 561,761 571,632 580,808 485,396 517,065 550,895 580,808 580,808
Total Inventory 3,333,977 3,393,512 3,467,113 3,534,531 3,607,403 3,693,320 3,767,239 3,850,847 3,934,966 4,012,582 4,083,083 4,148,632 3,467,113 3,693,320 3,934,966 4,148,632 4,148,632
SAP/DP
Supply
Planning
Finance
Consensus
Process
Parallel
Views
Internal Views
External Views
Control
Document
Sales & Demand Plan Flow
(Actual)
(Plan)
14
Business Forecasting Summit | March 6, 2013Copyright © 2013 The Goodyear Tire & Rubber Company
Performance Measurement
Incorporate measurement as feedback to improve the forecast
15
If it can’t be measured, it can’t be (proven) fixed
Direct Measurements:
• Accuracy
• Bias
• MAPE (Mean Average Percent Error)
Indirect Measurements:
• Customer Service
• Inventory Levels
• Supply Chain Costs
Make Measurements Matter:
• Tie Accuracy to Compensation
• Pay for Performance
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
0
1
2
3
4
5
6
7
8
9
10
Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12
Bia
s (%
)
Vo
lum
e
Forecast Bias (%) Forecast Actual
Business Forecasting Summit | March 6, 2013Copyright © 2013 The Goodyear Tire & Rubber Company
Advancing Forecasting Practices
Use SMART goals to drive improvement
Measuring performance highlights collaboration opportunities
16
Business Forecasting Summit | March 6, 2013Copyright © 2013 The Goodyear Tire & Rubber Company
“The measure of success is not whether
you have a tough problem to deal with, but
whether it is the same problem you had last
year.”
-John Foster Dulles
17
Business Forecasting Summit | March 6, 2013Copyright © 2013 The Goodyear Tire & Rubber Company
NAT Segment Operating Income1
($ in Millions)
($305)
$18
$276
$514 $450
2009 2010 2011 2012 Prior Target
Results
Strong process facilitates the path to profitability
S&OP Helps Drive:
Risk Mitigation
Forecast Accuracy
Inventory Turns
Customer Satisfaction
18
North American Tire exceeded its 2013 SOI target
one year ahead of plan
1 http://www.goodyear.com/investor/pdf/slides/4qtr12_slides.pdf
Business Forecasting Summit | March 6, 2013Copyright © 2013 The Goodyear Tire & Rubber Company
For More Information
www.Linkedin.com/in/isolveproblems
19