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Why is Forecast Driven Supply Chain so prevalent?
We find a majority of companies running their supply chains based on the monthly demand forecasts. We also know that Demand Driven Supply Chains are better at synchronizing supplies with demand on an ongoing basis. Why is the transition from FDSC to DDSC so slow?
In my opinion, there are three main reasons.
The first one is familiarity with the monthly planning cadence. Companies have been doing it for decades. The process is well-known. It is familiar. Why switch?
The second reason is application of demand drivers at the aggregate level. Doing it at the granular level requires better ML models. Why take the additional effort, despite knowing that disaggregation of forecast induces errors? Companies have lived with it for so long. Why not for the next few cycles as well?
The third reason is more controversial. If we depend on monthly forecasts, we can attribute lost sales to overselling and obsolescence to underselling. It looks safe for the team. Why take risk?
As a result, fill rates and obsolescence take a hit in FDSC. If we truly want to improve the supply chain performance, we must switch to DDSC.