A familiar refrain for most us that have grown up in the manufacturing industry. You've just had a substantial customer service failure, done a detailed root cause analysis, found a number of contributing factors, and then reported back to the leadership of the business that, well, 'we need to improve our forecast accuracy'! And that may well be the case! However, based on some research that IDC Manufacturing Insights is conducting, it is our premise that if a particular company's forecasting ca
First, in a supply chain survey that we conducted back in the spring of this year, when asked about their top supply chain initiatives, the 415 respondent companies listed their top priorities as follows:
- 49% cited reductions in procurement, manufacturing, and logistics costs
- 33% cited improved forecasting capability and accuracy
- 27% cited being more responsive to demand changes in the marketplace
Given the current economic environment, we'd be shocked if cost savings/cost containment were not the top priority for supply chain organizations; but the next two priorities reflect an interesting interrelationship between forecasting and responsiveness that IDC Manufacturing Insights has been advocating for some time now in our research. Certainly it should be important to try to improve forecasting capability (particularly if your company lags competitors), and to have a consensus plan through a Sales & operations Planning process, but it is equally important to be able to respond quickly to the inevitable unanticipated changes to that forecast. In other words, it is increasingly important, given market and demand volatility, to have the ability to be more responsive to demand and supply changes in the marketplace. As we point out at the outset of this piece: manufacturers may well find, given the relative state of their forecasting abilities, that investments in 'rapid response' drive greater business returns. In that context, the survey result may suggest a change in behavior. Additionally, responsiveness must be more than the ability to react to changes in demand, it must also account for changes and/or interruptions in supply as well.
The second survey was conducted with techology-oriented value chain manufacturers. We asked about the areas that they felt would drive change in the supply chain over the next few years. The top three areas were identified as follows:
- Cost containment
- Supply Chain responsiveness
- The ability to react to rapid changes in demand
We'd make the same observation here about cost as the top priority, but clearly the second and third priorities speak to the need for supply chains to be better at reacting to unpredictability.
At IDC Manufacturing Insights we are not suggesting that investments in forecasting capability are unnecessary, in fact there are a many companies with whom we deal that do need to improve their forecast accuracy. What we are suggesting is that forecast accuracy all too often becomes the supply chain 'whipping boy' for customer service failures, and in fact may not be the problem at all. A forecast is, at its essence, an educated guess of future sales and shipments. Regardless of the care and effort that goes into the forecast - and the number of planning PHD's on the payroll running the most modern forecasting algorithms - it will inevitably be wrong: how wrong becomes the key question. If a business is to meet their customer service objectives (i.e. case fill, OTIF, on-shelf availability, etc.), it must have the ability to properly respond to rapid changes in the forecast. This falls initially to the MRP process - which in most cases is ill suited to the task. Certainly responsiveness is more than just MRP, but that is often the starting point.