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Why should we forecast consumer demand?
The answer looks obvious. However, thinking about this question and applying the 5 Whys technique leads to one of the most profound insights in managing supply chains.
When I ask this simple question, most supply chain professionals have a similar answer… to plan, source, make, deliver. If you are thinking about this answer, you haven’t possibly asked Why five times.
The truth is simple. We need to forecast demand due to the inherent supply chain inefficiencies in meeting actual demand on a real time basis. These inefficiencies are lack of flexibility and poor responsiveness. Supply chains with higher level of flexibility and faster response depend much less on demand forecast. The benchmark, of course, is the Adrenaline production system in our body with seemingly infinite and flexible production capacity, coupled with instant response. Reflex action is another example.
This insight also leads to a seemingly endless opportunity for improvement in the areas of flexibility and response time. If you ever run out of improvement ideas, work on improving flexibility and faster response, till you achieve infinite flexibility and zero response time!