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.
- Get the Process Right
Demand planning is a sub-process within integrated business planning, not a stand-alone activity.
- Select the Right Level of Aggregation
Do you aggregate demand by product family or geographic region? Why?
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.
- Influence Demand
Use coordinated marketing events and promotions to swing the forecast into favorable territory.
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.
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.
Good, clean, data is an absolute.
- Manage By Exception
Remember that 80% of your return can be achieved by actively managing only 20% of the forecast.
- The Error Term is Your Safety Stock
A good statistical forecast will have an appropriate error which drives an appropriate safety stock target.
- 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.