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‘Loss Trees’ reveal more than what catches the eye.
Most companies monitor their ‘Fill Rates’ to check how well the customer requirements are serviced. The shortfall is ‘Sales Loss’, which is typically classified by them in certain pre-defined buckets. The analysis is called ‘Loss Tree’ which actually looks less like a tree and more like a waterfall.
If you do carry out this analysis, I suggest you check your latest report. The buckets reveal a lot about the way the supply chain team focuses on improving its own capabilities.
I have often seen the biggest bucket as ‘Overselling’, when sales exceed the forecast by a significant amount, say 25%+. Is it actionable or just for reporting? What do you need to improve in this case? The mindset seems to be of a huge dependence on forecast. If the company has forecast a particular level of sales, the sales team must stick to it, else we’ll miss servicing the extra customer requirements. Should they throttle sales? Obviously No.
Should we improve forecast accuracy? A tough task beyond a few percentage points, unless we change the process of forecasting.
The real improvement area is to reduce our dependence on monthly forecast and run the entire supply change in a ‘Demand Driven’ way.
Companies are moving in this direction by adopting ‘Demand Sensing’, which makes the forecast more granular, considers all Demand Drivers at that granularity and refreshes it more frequently. Daily refresh is quite common.