Supply Chains require accurate demand forecasts to be successful!

Having improved performance levels across supply chains for over 20 years I am still surprised at how few companies invest in deriving accurate demand projections.

Many business leaders advocate demand forecasts as being either ‘wrong or lucky’ leading to requests for investment in this area being muted. Given this opinion of forecasting, these same organisations continue to replenish requirements based on forecast-led MRP systems!

SC Management

The supply chain’s objective is to balance demand with supply. Not having confidence in your demand forecast severely limits the chances of achieving this goal. In many instances, where forecasts are poor or missing, supply teams have no alternative but to provide for all possible scenarios. This raises cost structures across the organisation.

The responsibility of ensuring demand projections are met rests largely with the supply chain team. Expert level knowledge and experience in managing this function is essential. Managing internal processes to achieve KPIs on a consistent basis is not optional. Building and maintaining alignment between partners becomes the substance that balances supply with customer demand in the most efficient manner. A lack of success in these areas will raise costs.

Partners

Without confidence in your demand projections constant fire-fighting methods are required to achieve outbound OTIF targets. Regular alterations to purchase orders become the norm. The placement of urgent orders coupled with expensive modes of transport further raise costs. How long will it be before your supplier of choice either stop reacting to your change requirements or substantially increase the cost for doing so?

Excessive inventory holdings, extra staffing, excess capacity, and poorly managed processes are some of the main contributors to cost increases. At some point customers will become concerned about your high operating costs being passed on to them and will question whether they need to consider alternative sources of supply.

Accuracy levels

After each period the accuracy of the forecast will be measured to determine how well the supply chain met demand. The use of a simple average generally results in extremely low accuracy levels. The methods used need to be aligned with, and appropriate to, corporate goals.

Benefits

I have witnessed the large cost reductions achieved through the determination of accurate demand forecasts. There are many companies in different sectors who have confidence in their demand projections and are reaping the rewards. If you are not part of this group it may be time to consider whether you too could benefit from impressive costs savings.

Having confidence in your demand projections allows your supply chain the freedom to innovate and strive for higher levels of responsiveness while keeping costs low.