Supply Chain Rules of Effective Forecasting Essay

Q1: Write a summary about the six rules of effective forecasting? Paul Saffo is the author of the article of six rules for effective forecasting. He points out that effective forecasting is very different from accurate forecasting as it is possible that a forecast is effective but it may or may not be accurate. Accurate forecasting entails being unsure of the situation and one should not race to answers. Effective forecasting on the other hand means looking at the full range of forecast, understanding the un-surety that lies ahead and not rushing to a conclusion.

He also adds that a wise consumer is not a bystander but a participant and a critic. The six rules of forecasting given by him are given below:

Rule 1: Define the cone of uncertainty:

He says that one has to rely on intuition but effective forecasting provides essential context that informs one’s intuition. He adds that forecasters should use their common sense of visualizing and predicting the uncertainties.

He describes mapping a cone of uncertainty as a tool that is used to delineate possibilities that extend out from a particular moment in time. The forecaster’s should define the cone in a manner that helps the decision maker exercise strategic judgment and it should encompass all the reasonable possibilities that lie ahead. The cone can be narrowed in subsequent refinements but if the cone is drawn too narrow, it leaves you open to avoidable unpleasant surprises.

Rule 2: Look for the S Curve:

Saffo points out that the changes rarely unfold in a linear way. Changes unfold slowly at start and after a critical point is reached, everything starts to change rapidly before it eventually settles down. Very large, broadly defined curves are composed of small, precisely defined and linked S curves. Good forecasting is to identify an S-curve pattern as it begins to emerge. He further states that as forecaster one should never mistake a clear view for a short distance and never underestimate the long term. It might appear to happen soon but it might take longer to arrive and when it does, it might unfold in an unexpected way.

Rule 3: Embrace the things that do not fit:

The entire portion of the S curve to the left of the inflection point have some subtle indicators that when aggregated become powerful hints of weird things that are about to come. The best way for forecasters to spot an emerging S curve is to become attuned to things that don’t fit things. Forecasters sometimes tend to ignore indicators that don’t fit into familiar boxes. He also adds that good forecasting is like bad research.

Rule 4: Hold strong opinions weakly:

One of the biggest mistakes a forecaster makes is to over rely on one piece of seemingly strong information because it happens to reinforce the conclusion he or she has already reached. Forecasters should come to a conclusion quickly based on the information available but do not get attached to their conclusion. Forecasting should proceed as a sequence of failed forecasts, where they should be a critic of their own forecasting. Forecasting is a process of strong opinions, weakly held.

Rule 5: Look back Twice as far as You Look Forward:

The past events can be used to connect the dots leading to the present indicators and thus map the future path. This should be done in order to perceive patterns of change. But the problem with history is that our love of certainty and continuity often causes us to draw the wrong conclusions. The author adds that “history doesn’t repeat itself, but sometimes it rhymes.” The effective forecaster looks to history to find the rhymes, not the similar events. Forecasters should search for similar patterns, looking at history but also looking into the face of uncertainty and not just at the things that fit into your idea.

Rule 6: Know when not to make a forecast:

It is important to note that there are times when forecasting is too difficult and uncertainty is huge. When this happens it is best to wait until it clears down a bit and things settle. The cone of uncertainty is not static; it expands and contracts as the present rolls into the future and certain possibilities come to pass while others are closed off. So it is best to wait until things are clearer to see and predict.

Q2: Comment on the article. That is, where do you strongly agree with the author? Ans: I think that the author has given a good view into forecasting and has well differentiated effective forecasting from accurate forecasting. The forecast is based on logic and the logic can be articulated and defended. I strongly agree with the rule 4 that states ‘Hold strong opinions weakly’. I think that if we already have a strong opinion in favor of an issue, then we tend to overlook details of the analysis and lead to a biased forecast. I also agree with the rule 3 that tells that one should embrace the things that don’t fit into the box. This is very important because in some situations we feel that certain aspects are linked to our prediction but when carefully analyzed those might not fit into our scope. Also looking closely at the subtle indicators helps us to find out the unpredictable behavior of things that might unfold in future.

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