Luke Skywalker, Supply-Chain Hero

Employing a Star Wars metaphor, OfficeMax's Reuben Slone argues for an enlightened approach to supply-chain management.

What metrics do you look at to forecast demand for your products and services at OfficeMax?

The whole [aim] of forecasting is to predict human behavior. So you’ve got what I call rocket scientists using regression analysis. Their job is to say, given what happened in the past, here’s what we think will happen in the future. The most critical metric is point-of-sale history. Then you start layering in internal causal events — price changes or anything to do with promotions, for example — that can push that metric up or down.

Then we try to capture as much correlation as we can between things we’re doing and the broader economic environment in order to predict sales. If we were running a promotion that happened to be around the Super Bowl, for instance, it could be overshadowed. Our events often happen on the weekends, and if someone’s home watching the Super Bowl, then they probably won’t be out shopping. We haven’t done promotions during the Super Bowl for that very reason.

Among the other factors affecting our demand forecast is the competitive entry or exit at the store level: when a Best Buy or a Staples opens, how will that change buying patterns around our store? We also look at the effects of weather and actually have a “hurricane algorithm.” This helps us predict how many bottles of water, flashlights, batteries, and other things people will buy from our stores in advance of or after a storm. Seasonality is another factor: there’s very different buying behavior at our stores in January, February, and March than there is in the fall.

What role should the CFO play in forecasting?

One of the CFO’s key responsibilities is communicating with the investment community. The CFO has the difficult job of providing either specific or general guidance on how the company will perform next quarter or next year. In essence, share price represents what people feel about the company and its prospects for the future. So there can’t be anything more important than the CFO overseeing the forecasting process for the company. If it doesn’t work, how can the CFO provide guidance with any kind of credibility to the investment community?

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