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Intelligence forms intelligent thinking

Procurement intelligence

Here’s some good news: The accuracy of weather forecasting is improving significantly. According to a new report from ForecastWatch, a US company that assesses the degree of precision of weather forecasts, our ability to accurately predict what the high temperature will be tomorrow has improved by almost a whole degree Fahrenheit over the past 12 years.

 

While that doesn’t sound like much, it’s actually a very big deal in meteorology circles.

 

There are obviously a lot of benefits to having reliable weather reports. Authorities can make more informed decisions around whether to evacuate those threatened by an approaching hurricane, as an example.

 

This extends to business-related decisions too. Sports teams need accurate weather forecasts to predict how many people will turn up for a game so they can better predict demand for food and the security staff they will need. Utility companies meanwhile need such information to determine how many line repair trucks they will need to send to different areas. Billions of dollars can be saved or lost based on business decisions that take weather forecasts into consideration.

 

For procurement specifically, more accurate weather forecasts can help them mitigate risk across the supply chain. Seeing the rise of a storm, functions can shift the source of supply or reroute logistics networks.

 

Weather forecasting is indisputably a science. A forecast starts with measurements of atmospheric elements, such as temperature, wind and humidity. These observations are fed into computer algorithms, which then produce models that are used by forecasters to look for trends and generate predictions.

 

But, while weather forecasting has improved, business forecasting has generally stood still. There’s not a whole lot of confidence in its reliability; and yet, it’s an ability that can make or break careers. There are various models in use – top-down, bottom-up, a hybrid of the two – chosen on the basis of how much data is available and what is desired in terms of scale and business outcomes. The methods are vulnerable to assumptions and to erroneous estimates of things like sales and demand.

 

In this increasingly volatile world of ours, it’s getting harder and harder to forecast what might happen next week, let alone next month, next quarter or next year.

 

Add to this the concerns about climate change and rapid evolution of technology, and you have achieved a degree of complexity and uncertainty with the potential to send seismic shocks through the international business community and their complex global supply chains.

 

Meteorology is complicated too, with the potential for a wide variability of forecast results. One tool forecasters use to reduce that variability is “ensemble guidance” – a feature of many global forecast models. Simply stated, weather ensembles combine a set of different computer-generated forecasts to give forecasters a range, or “spread,” containing within it a prediction that is likely to be accurate.

 

This is how business forecasts should evolve. For procurement, this means bringing in as much information from its supply chain, its wider operations and external providers as possible and analysing that to come up with a more accurate prediction.

 

Get this right and the function will find itself quickly making better decisions that improve business performance.

 

GEP Outlook: Procurement 2018 report looks at the events that are likely to have the greatest impact on business and industry this year. Its section on global business and macroeconomic trends focuses on the continued impacts of the policy changes and economic repositioning pursued last year by the major world powers.

 

The report includes separate discussions of GDP forecast, financial markets, commodities, and the geopolitical context for all of these aspects of the global economy.

 

Read the report here.

 

Darren Lynch is vice president, consulting – Europe and chair of the Thought Leadership Council at GEP.

 

This contributed article has been written by a guest writer at the invitation of Procurement Leaders. Procurement Leaders received no payment directly connected with the publishing of this content.

Darren Lynch
Posted by Darren Lynch

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