Comments on: No Longer a Need to Forecast? http://www.daveturbide.com/no-longer-a-need-to-forecast/ Services for the Manufacturing Industry Wed, 11 Aug 2010 18:46:19 +0000 hourly 1 http://wordpress.org/?v=3.0.2 By: Bill Konopaczhttp://www.daveturbide.com/no-longer-a-need-to-forecast/#comment-36 Bill Konopacz Tue, 25 May 2010 06:25:20 +0000 http://daveturbide.com/?p=697#comment-36 I agree with the above statements and the fact that forecasts are definitely needed. What was not stated was that forecasts are not a static tool. As demand changes for a variety of reasons (customer demand, new products introduction, political, environmental, etc.) forecasts have to be revised. Suppliers have to be made aware and have to be able to react. Preceding this action is supplier selection. Ones that actually partner with your company and you with them. Ones committed to reducing setup time and running smaller lots, reducing obsolescence at the component level. Agreements between the purchasing body and the supplier have to be negotiated up front as to how far into the future the supplier can build off the given forecast. The timeframe will vary from SKU to SKU depending on volume, risk and potentially seasonality. All parties concerned realize that meeting the end customer demand can increase market share for the purchasing body and increased profits for all. I agree with the above statements and the fact that forecasts are definitely needed. What was not stated was that forecasts are not a static tool. As demand changes for a variety of reasons (customer demand, new products introduction, political, environmental, etc.) forecasts have to be revised. Suppliers have to be made aware and have to be able to react.
Preceding this action is supplier selection. Ones that actually partner with your company and you with them. Ones committed to reducing setup time and running smaller lots, reducing obsolescence at the component level. Agreements between the purchasing body and the supplier have to be negotiated up front as to how far into the future the supplier can build off the given forecast. The timeframe will vary from SKU to SKU depending on volume, risk and potentially seasonality.
All parties concerned realize that meeting the end customer demand can increase market share for the purchasing body and increased profits for all.

]]> By: Gary Gossardhttp://www.daveturbide.com/no-longer-a-need-to-forecast/#comment-35 Gary Gossard Fri, 14 May 2010 02:11:05 +0000 http://daveturbide.com/?p=697#comment-35 I agree that with the emphasis on pull systems, cycle time reductions, vendor managed inventories, lot size of one, and lean initiatives that forecasts were deemed less important and fell in to disuse or less use by many companies. Many of them later realized that forecasts and planning are needed regardless of the manufacturing environment. The replenishment triggers may have changed but forecasting and materials planning are still needed to balance our resources and provide information to suppliers. In my view, last few years have seen a renewed use of forecasts and the development of better forecasts. I believe this is due to primarily to the adoption of formal S&OP. Other factors include schedule-sharing with suppliers, the longer-lead-times associated with global sourcing, and cross-functional-teams participating in the process. The bigger problem as I see it is not the quality of the forecast, it is what we do or don’t do with the forecast. Many companies use the forecast along with firm customer orders to drive MRP and their Master Production Schedule. Others may us the forecast directly to order raw materials or purchased parts. Most companies, however, do not use current forecast data to determine ABC inventory classes, order quantities, lot sizes, or safety stock levels. These key replenishment rules are most often set or revised based on past usage, if they are revised at all. Those companies that do revise replenishment triggers and order quantities tend to do it based on past usage data rather than future requirements. I suggest that these companies are missing a great opportunity to manage their inventories based on what they will need, rather than what they did need. To my mind, being “demand driven” doesn’t mean lot size of one. Rather, it means making better use of our forecasts and taking a forward-looking approach to managing our inventories and working capital. There are tools available that can help. I agree that with the emphasis on pull systems, cycle time reductions, vendor managed inventories, lot size of one, and lean initiatives that forecasts were deemed less important and fell in to disuse or less use by many companies. Many of them later realized that forecasts and planning are needed regardless of the manufacturing environment. The replenishment triggers may have changed but forecasting and materials planning are still needed to balance our resources and provide information to suppliers.

In my view, last few years have seen a renewed use of forecasts and the development of better forecasts. I believe this is due to primarily to the adoption of formal S&OP. Other factors include schedule-sharing with suppliers, the longer-lead-times associated with global sourcing, and cross-functional-teams participating in the process.

The bigger problem as I see it is not the quality of the forecast, it is what we do or don’t do with the forecast. Many companies use the forecast along with firm customer orders to drive MRP and their Master Production Schedule. Others may us the forecast directly to order raw materials or purchased parts.

Most companies, however, do not use current forecast data to determine ABC inventory classes, order quantities, lot sizes, or safety stock levels. These key replenishment rules are most often set or revised based on past usage, if they are revised at all. Those companies that do revise replenishment triggers and order quantities tend to do it based on past usage data rather than future requirements.

I suggest that these companies are missing a great opportunity to manage their inventories based on what they will need, rather than what they did need.

To my mind, being “demand driven” doesn’t mean lot size of one. Rather, it means making better use of our forecasts and taking a forward-looking approach to managing our inventories and working capital. There are tools available that can help.

]]> By: Ann Grackinhttp://www.daveturbide.com/no-longer-a-need-to-forecast/#comment-34 Ann Grackin Wed, 12 May 2010 11:22:29 +0000 http://daveturbide.com/?p=697#comment-34 Actually, we are seeing a positive trend in Demand Management. Not only the technology has gotten substantially better, but senior exec’s do know the value and we sometimes even see it in their 10k’s and other communications to shareholders how demand management techniques contributed to better performance. New customer relationship/segmentation models; new relationships between trading partners all managed through demand management activities. In particular, all this rationalization of supply chains due to globalizations and the economic downturn has been done in a ‘smart way’ by using the Demand/Supply Chain systems companies have. Our research on 2010 priorities shows Demand Planning the number one priority for this year. We just got done doing a series of research on this and have been publish extensively on Demand in the Second Decade: http://www.chainlinkresearch.com/research/index.cfm?topic=10 and other reports. You will also note that sales of software is not too bad, considering this market. I think the real challenge here is the knowledge and skills to run a better forecast process, something too many people know not enough about. Actually, we are seeing a positive trend in Demand Management.
Not only the technology has gotten substantially better, but senior exec’s do know the value and we sometimes even see it in their 10k’s and other communications to shareholders how demand management techniques contributed to better performance.
New customer relationship/segmentation models; new relationships between trading partners all managed through demand management activities.
In particular, all this rationalization of supply chains due to globalizations and the economic downturn has been done in a ‘smart way’ by using the Demand/Supply Chain systems companies have.
Our research on 2010 priorities shows Demand Planning the number one priority for this year.
We just got done doing a series of research on this and have been publish extensively on Demand in the Second Decade: http://www.chainlinkresearch.com/research/index.cfm?topic=10 and other reports.
You will also note that sales of software is not too bad, considering this market.
I think the real challenge here is the knowledge and skills to run a better forecast process, something too many people know not enough about.

]]> By: R. Michael Donovanhttp://www.daveturbide.com/no-longer-a-need-to-forecast/#comment-33 R. Michael Donovan Tue, 11 May 2010 19:22:47 +0000 http://daveturbide.com/?p=697#comment-33 Hi Dave, Forecasting and inventory deployment in the supply chain does not get much attention from senior management if they are unaware of cascading negative consequences a poor process has on overall business performance. Many in senior management tend to let the forecasting and inventory deployment process be performed by lower levels without any monitoring nevermind intervention. Many times over the years, I have told clients that if the time to acquire raw material and to manufacture the product is a cumulative leadtime greater than the customer is willing to wait you have to forecast. The most concerning aspect is that one or more people in the organization are forecasting now and it's likely to be the wrong person(s), without the right tools and forecasting the wrong way. The result can be lost sales and margin along with increased costs buried in overhead accounts and excessive amounts of compensating inventory. R. Michael Donovan Hi Dave,

Forecasting and inventory deployment in the supply chain does not get much attention from senior management if they are unaware of cascading negative consequences a poor process has on overall business performance. Many in senior management tend to let the forecasting and inventory deployment process be performed by lower levels without any monitoring nevermind intervention.

Many times over the years, I have told clients that if the time to acquire raw material and to manufacture the product is a cumulative leadtime greater than the customer is willing to wait you have to forecast. The most concerning aspect is that one or more people in the organization are forecasting now and it’s likely to be the wrong person(s), without the right tools and forecasting the wrong way. The result can be lost sales and margin along with increased costs buried in overhead accounts and excessive amounts of compensating inventory.

R. Michael Donovan

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