Oct
12
Introduction To The Role Of Forecasting In Your Supply Chain
Filed Under Blog | Comments Off on Introduction To The Role Of Forecasting In Your Supply Chain
Being able to estimate material needs is a crucial activity for those companies looking to have available stock to cover customer requirements rather than making product to order. By forecasting the top level / finished goods demand, production and planning teams can then explode the bill of material then utilize lead times to quantify and schedule the procurement and supply of component parts.
To avoid stock outs or purchasing/manufacturing within shortened lead times accurate forecasting is critical. Faced with the task of forecasting how much of something you will need can have serious business consequences especially for businesses operating with products that have long lead times. Getting the forecast wrong can result in either surplus materials, where the forecast is higher than the actual demand or at the other end of the scale stocks outs or a failure to meet customer demand.
There are various ways in which organizations can calculate forecasts
Statistical Forecasts
For many companies the primary process for calculating forecasts is to utilize software tools. Whilst these tools are often embedded within the organizations ERP system dedicated forecasting software packages are available.
Data is taken from the ERP system including previous demand and current transactions, a standard set of variables is then configured (typically including desired service level and length of forecast) and the likely demand is then generated.
Statistical forecasts are very much based on actual data created from system transactions. The information used has to be comprehensive enough to ensure that a reliable output is produced. One of the challenges of this approach is that there may be market intelligence that the can influence the forecast that is not transactional – for example the award of a new customer contract, or a new product launch – which maybe difficult (if not impossible) to predict on historical transactions alone. This form of forecasting is also reliant on ERP system data integrity.
Non Statistical Forecasts
Another method of forecasting is without the use of statistical data. These are forecasts that have been devised from subjective estimates of what demand might be. The forecast may take a number of inputs from previous demand through to market intelligence but is often based on current or near term demand. The non-statistical forecasts can take into account sudden changes in production, sudden fluctuations that are not based on statistics, so there are times when both types of forecasts are required.
Summary
Forecasting is obviously difficult, simply because it is not an exact science and it as the supply chain is subject to sudden changes, difficulties and external factors – forecasts must be maintained. Forecasting provides the organization with a guide to future demand. Remember though, despite both experience and knowledge of the current and future environment no forecast will be fully accurate.
Oct
12
Can supply chain benchmarking deliver improvements?
Filed Under Blog | Comments Off on Can supply chain benchmarking deliver improvements?
Benchmarking is the act of comparing ones business, its performance and its processes, with others either within the same company (depending on its size), the same industry or in a different industry. It’s typically used to identify and absorb best practice.
Benchmarking can be carried out on most if not all company activities including the supply chain. Whilst its successes are heavily dependant on its planning and execution, benchmarking, through looking outside the company, can facilitate innovation and market knowledge. The best elements from within the industry (or outside it) can be merged forming new more efficient processes delivering increased value.
The supply chain benchmark process
Benchmarking is all about understanding and comparing. Supply chain activities can be many from planning, sourcing, procuring, forecasting to managing assets. Given these spread of activities it’s important to understand:
• Which processes you intend to benchmark
• What performance criteria/ measures/data you will compare
For benchmarking to be successful it must not be subjective – using data and KPI’s ensures a relatively level playing field when comparing peers. For example I may wish to review the performance of my suppliers so may focus on benchmarking my Delivery schedule adherence with a view to understanding the key processes peers use to drive and sustain higher results than mine.
What aspects of my supply chain should I review?
The key is understanding what processes are utilized– a good start is to firstly carry out a diagnostic of your own organization.
1/ Analyze the performance that is delivered to your customer
2/ Analyze the performance that is delivered through your supply chain
3/ Analyze the cost
4/ Analyze the processes and policies that are used to deliver the services that you provide.
Once you have a level of understanding regarding your own performance you can then understand areas of weakness or areas where you suspect improvement would deliver the desired objective (i.e. greater customer satisfaction).
The success rate of your benchmarking activity will vary – preparation is key – when benchmarking ensure that:
• Analysis is relevant to ensure that the results are relevant
• Analysis is sufficiently detailed (it’s as important to know how peers obtain their results as just knowing the results).
• Consider your peer selection carefully – consider what you are trying to achieve and whether the candidates you have selected can deliver on that.
Benchmarking partners
Finding appropriate and willing benchmarking partners can be a key barrier. Where industries are highly competitive peers are less likely to wish to participate – trade associations may help but in some cases the granularity of data being shared may not be sufficient and certainly where processes contribute to competitiveness they are less likely to be open. Careful understanding and resolution of these issues must be considered prior to carrying out your benchmarking activity.
One consideration (and one which to some extent mitigates peer resistance) is to consider outsourcing your benchmarking activity. There are numerous consultancy companies and associations that specialize in supply chain benchmarking, many with proven track records and with access to large peer groups.
Summary
Benchmarking undoubtedly has a role to play in both understanding and improving your supply chain. It can be a difficult thing to get right and there are some key barriers. Done correctly it will provide an opportunity to ascertain where your organization stands whilst receiving leading edge information on what best practices are in use and understanding how these can be utilized to improve your business.