Forecasting cash: The only thing we know for sure is that we are wrong. (But that’s OK.)

In the world of statistical modeling, it is widely known that “all models are wrong.” But that’s OK because some models are more useful than others. And that’s the model we use—the useful one. Here is what I mean by that.

Morphis•IMF, for Intuitive Monetary Forecasting, passes historical data through several statistical models (ain’t saying how many or which ones) and then selects the “least wrong” method to generate daily net-demand estimates for the next 60 days. Nearly all of these guesses will be wrong for any given day. But that’s OK because, over time, the series of inaccurate guesses become very precise. 

In fact, more precise than the latency built into most cash supply chains. If you’re forecasting for a 28-day demand period, and supply chain latency is three days from order to delivery, that requires a relatively low level of accuracy. But if you forecast for a three-day demand period and your latency is three days, there is much less margin for error. 

Enter Rule #1.

Rule #1: Don’t run out!

Pretty good rule, right? The “DON’T RUN OUT” rule tells us that we have decisions to make, and GOOD DECISION MAKING is really at the heart of managing any supply chain, cash or otherwise. 

After forecasting the future, we have to make complex decisions. The first decision is WHEN do I order?  That doesn’t sound complex, but what if Tuesday is the regular delivery date, and the latency period is three days, and Monday is a holiday?

Should the order be placed on Wednesday or Thursday?

What??? Monday is a holiday!!!! 

That means cash RUN OUT on Sunday. EEEEK! 

An order placed on Tuesday, delivered on Friday, would avoid RUNNING OUT on Sunday? Can next week’s cash be delivered at the same time to avoid going twice? HOW MUCH cash would that require?

It is very pesky this RULE#1.  It poses many complex questions and always throws you a curveball at the end.

(This is the sales pitch part; please read carefully to the end then Like and Share.)

Forecasting and decision-making are built right into every Morphis cash management product. Morphis forecasts for every cash endpoint every day and then decides what to next and when to do it. You press the button and enjoy your coffee.

Cash forecasting from Morphis doesn’t just eliminate spreadsheets, tribal knowledge, and guesswork. It eliminates breaking RULE#1.  And that my friends can give you your life back.