Daily Archives: February 26, 2009

Free Trade Pact: Challenge or Opportunity?

As pointed out in an article in Global Logistics & Supply Chain Strategies last summer, a proliferation of bilateral and regional trade agreements in recent years has made it more difficult than ever for companies to understand the many duty-avoidance options they might leverage to lower the total landed cost of imported goods, which is important given the current downturn and the fact, as pointed out in Sourcing Innovation’s recent Illumination on Why You Need Trade Visibility, that global trade losses can be significant if your cost-avoidance options are not maximized.

While bilateral (and regional) trade agreements go against the WTO‘s support of broad, multi-lateral trade pacts, the (agonizingly) slow pace of the Doha multilateral negotiations (which broke down last July after failing to reach a compromise on agricultural import rules and which were suspended until sometime this year) has made the (relatively) rapid time-to-benefit of bilateral agreements an attractive option (and many WTO members are already party to 10 or more such agreements). These agreements are so attractive that the WTO estimates that there will be around 400 such agreements by 2010.

These preferential agreements offer significant savings opportunities to companies that are able to manage them effectively. For example, Black & Decker increased it’s NAFTA savings by 240 percent, from 3M to 7M, simply by insuring that over 95% of eligible products are taking advantage of NAFTA benefits. An importer who took advantage of Free Trade Zones to accumulate multiple shipments imported during a 7-day period and combine them into a single shipment and saved hundreds of thousands of dollars in broker’s fees and merchandise processing fees (as detailed in Creating a Competitive Advantage in Global Trade by GDM). But these benefits are available only to those who know how to find them … and for that, you need an appropriate trade visibility system.

Infor’s Top 10 Demand Planning Strategies

The bullwhip effect is as true today as it ever was in modern, elongated global supply chains where small errors at the front are magnified throughout the process.
  Andrew Kinder, Director of Product Marketing, Infor

Forecasting is tough. Really tough. Especially in today’s market where consumers are fickle, credit is an unpredictable tide, and a single competitor innovation can completely change the market landscape. You have to forecast with foresight, balance judgmental and statistical methodologies, and focus on aggregate demands while continually sensing demand. And you have to be on your toes.

So how do you get it right? Although each situation has it’s own unique qualities, and any solution you acquire will have to have its model tweaked for your reality, there are some general steps that you can take that, if performed properly, will greatly increase your chances of success. These steps were captured quite nicely in a recent Infor top 10 checklist that was published last fall in this Industry Week article.

  1. Get the Process Right
    Demand planning is a sub-process within integrated business planning, not a stand-alone activity.
  2. Select the Right Level of Aggregation
    Do you aggregate demand by product family or geographic region? Why?
  3. Collaborate
    Statistics provides a foundation to build on, but the real value comes from over-laying expert knowledge that a system cannot know and cannot infer, such as a new marketing effort or an announcement by your competitor that was taken negatively by the market.
  4. Influence Demand
    Use coordinated marketing events and promotions to swing the forecast into favorable territory.
  5. Measure
    Select the right set of linked key performance indicators and measure against them regularly. This will tip you off to demand swings and allow you to tweak the forecast before it becomes a problem.
  6. Educate
    Before allowing someone to provide input into the forecast, it is critical that they understand how their contribution will impact the forecast and the performance against the demand plan. Otherwise, they may just guess and provide bad input that instantly ruins your best efforts.
  7. Cleanse
    Good, clean, data is an absolute.
  8. Manage By Exception
    Remember that 80% of your return can be achieved by actively managing only 20% of the forecast.
  9. The Error Term is Your Safety Stock
    A good statistical forecast will have an appropriate error which drives an appropriate safety stock target.
  10. Deploy a Proven Best-of-Breed Technology Solution
    According to Aberdeen, companies that excel in demand management are two-and-a-half times as likely to have implemented a best-in-class demand planning system.

All-in-all, it’s a great demand-planning checklist.