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How do we reduce our dependence on sales forecast for Supply Chain planning and execution?
In consumer goods companies, consumers’ tolerance time for product availability is practically zero. If a brand is stocked out on the retail shelf, consumers would most likely pick up an alternate brand. In such a Make-to-Stock scenario, we must estimate demand till the next supply arrives and use it to set inventory buffers.
Many TOC implementations, with no forecast dependence, inherently assume that the recent demand is a fairly good indicator of the near term future demand. However, if we want the inventory buffers to be more dynamic and streamlined, we must predict the near term demand covering the RLT.
Since the demand sensing and demand prediction need a daily refresh, we also need to develop two more supply chain capabilities. The first one relates to improved flexibility in reconfiguring the distribution, production and procurement plans. The more flexible our supply chain becomes, the less will be our dependence on forecast.
The second capability relates to our speed of response, which is the time taken to execute the reconfigured plans. Many supply chains work on rigid policies and practices, which prevents a fast response. However, every time we improve the supply chain responsiveness, our dependence on forecast goes down.
Most companies can benefit and reduce their Forecast Dependence by developing these three supply chain capabilities… sharper demand sensing, improved flexibility, and faster response. It’s an ongoing journey, best managed by POOGI.