Operations Payoff

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Creating a Forecast

The July heat wave in the Northeast was a challenge for everyone, but perhaps most of all for the people in charge of regulating the region’s electrical supply. According to a July 30, 2011 article in the Boston Globe, ISO New England (Independent System Operator) oversees the power grid for the six New England states, connecting power suppliers, local utility companies, and demand response companies, “which pay customers to reduce their energy use during peak demand periods, then sell that extra capacity back to the grid” to manage consumer demand, which was sky-high during the recent heat wave.

But how high is high, and how can an ISO predict demand accurately enough to avoid black-outs but also avoid overcharging utility customers? By creating an accurate forecast. Now in this case, the ISO forecast was based largely on the weather forecast, but it didn’t end there. ISO took an approach to creating an accurate demand forecast that other companies – whether they are manufacturers, distributors, retail or service organizations – can use as a model. Here is what they did:

  1. They looked at the weather forecast and took into account the various conditions that affect power consumption, like humidity, cloud cover and temperature.
  2. They examined the historical record to find out how much energy customers used in similar situations in the past.
  3. They communicated regularly with their network of suppliers about the current state of supply and demand.
  4. They relied on flexibility in their supply chain, which enabled them to switch power from one line to another, reach out to power suppliers in other states and Canadian provinces, and manage demand through demand response companies.

While some aspects of business are unpredictable, we can create a good forecast if we look at conditions, examine demand history, and establish flexibility. When the lights stay on and the air conditioner keeps running, we have accurate forecasts to thank.

© 2011 – Rick Pay – All Rights Reserved

Authors: Paige McKinney, Rick Pay


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