Someone recently said something along these lines: “When it comes to delivering on your promises to customers, the quality of the information you use in managing your supply chain management is key.” [Emphasis added.]SCM ForecastAccuracyCurve_chart.jpg

 

Meanwhile, folks like Herb Kleinberger of PricewaterhouseCoopers are saying, “Everyone is guessing along the supply chain as to how much to make and ship. And they’re all guessing in separate ways…, so everyone builds in extra safety stock to buffer forecasting errors.”

 

Going way out on a limb

I’m going to go way out on a limb here to state what I think should be supply chain axiom:

Guesses—no matter how they are generated (by humans or by machines) are of lower quality, on the information quality scale, than are data on actual demand

 

Moving at the pace of actual demand

Now, I will grant you that most supply chains do not have the luxury—or, even, possibility—of being able to make-to-order (MTO). The customer tolerance for delivery is far too short when compared to the time to produce the goods required.

 

However, that should not stop them from producing good based on the pace of actual demand as reflected by the condition of strategically sized and place buffers.

 

Most buffers in a demand-driven supply chain will be stock buffers consisting of a specific, dynamically managed, quantity of goods stocked at a specific location in the supply chains.

However, other buffers that can be used to manage and monitor supply chain execution might be capacity buffers or time buffers. Each has its proper place.

 

Forecasting (guessing), too, has its place in demand-driven

There’s a place for forecasting (guessing), too.

 

Forecasting in demand-driven supply chains should be used

  1. For planned adjustments to buffers based on known or anticipated upcoming changes in supply or demand (e.g., seasonality, new product introductions, product end-of-life, new distribution channels coming on-line)
  2. For capacity planning (e.g., expanding or contracting to the workforce as needed; adding facilities or equipment)

 

If the forecast (guess) is approximately right in these scenarios, you should still be in an okay condition.

 

Why so much firefighting?

Why do you think supply chain participants spend so much of their time, energy and money in acts of firefighting?

 

The answer is really, in my opinion, quite simple and two-fold:

  1. Their buffers (i.e., stock, time and capacity) are not strategically designed and placed in their supply chains
  2. They rely on guesses (forecasts) for execution, so they end up consuming capacities building and shipping things that will not get sold, while things that are in demand cannot be built and shipped on-time

 

It doesn’t have to be that way. We can help.

 

Let us hear your thoughts on these matters. Leave your comments below. Or, if you prefer, please feel free to contact us directly.

 

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