Oct
7
Introduction To The Role Of Forecasting
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The forecasting process is extremely important for most businesses. In many cases the forecasting activity drives supply chain processes including the procurement of goods and corresponding inventory control. It can be a challenging and complex activity depending on the business environment and in many cases is analogous to crystal ball gazing albeit one in which you are armed with some level of information.
The key output required from forecasting is determining how much of a product will be bought by customers (or consumed by internal customers). Overly optimistic forecasts may result in the acquisition of too much raw materials (therefore wasting valuable capital). Where the forecast is too low and does not match demand then the company may not meet customer demand and may either lose customers or fail to meet agreed service levels.
What you create when you carry out a forecast
A forecast will typically deliver the anticipated demand profile over a number of months/years for the top level product/part– in many environments this in turn will drive procurement activity that will utilize known lead times to order to procure material in time to meet the the requirements of the forecast.
While the actual forecasting processes may vary from company to company the key concepts are fairly common and are utilized by most businesses.
Statistical Forecasts
Many organizations choose to utilize specialist forecasting software that commonly take data from the ERP system and extrapolate it into a future demand profile. For many organizations this data analysis is supported by what is known by the organization (i.e. market intelligence) to tune the demand profile into what is thought to be realistic.
Data integrity is obviously key for organizations following this approach and the benefits include that the organization is basing its forecast on non-subjective transactional data (often that which is happening in real time) the forecast is configured in such a way that the forecasting solution can deliver a number of outputs or models depending on pre-configured criteria.
Non Statistical Forecasts
There are other forecasts that are often grouped together as non-statistical forecasts. These are forecasts that have been devised from quantities that are determined by production planners. The forecast is usually based on current demand alone.
The Importance Of Forecasts
Forecasts are vital if the supply chain is to be kept stable. If the supply chain becomes vulnerable to stock outs or if there are no accurate forecasts made, then the manufacturing function can be severely impacted putting strain on the supply chain and supplier lead times as the result of inaccurate forecasts are attempted to be mitigated.
Oct
6
Impact of the recession on retail supply chain performance.
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The recession has placed increasing pressure on firms to remain competitive in an ever more cut-throat market as consumers look for increasing value whilst retaining “givens” like quality and availability.
This pressure has led to many businesses placing increased focus and responsibility on their supply chains to both source more effectively and be innovative in managing cost. It is not just that retailers want to get more supplies for less but that this is coupled with a requirement for efficiency and risk management.
Keeping Costs Down
Before looking at the impact that the recession has had on business practices lets put it into some perspective. Discover US Spending monitor (an organization that tracks consumer confidence) found in a recent survey that during 2010 “a majority of couples with children viewed both the US economy and their personal finances as getting worse”. The Washington Independent reports on economist Robert Gordon predicting that “the period will witness the slowest growth ever in GDP per capita and, therefore, American living standards.” Many stores (and house hold names) have gone. Many more are teetering on the brink. The predicted slow growth and pressure on consumer spending will mean for that the pressure on retail will be immense.
Sophisticated consumers
The retail supply chain has increasingly become much more sophisticated with global networks of suppliers, multiple distribution channels and increasing legislative controls. This vastly changing landscape alongside hugely competitive markets filled with ever more savvy consumers requires appropriate strategy.
Supply Chains answer
With increased pressure being placed on Supply Chain teams, executives will need to develop strategies that deliver against a set of key objectives
Cost
Quality
Agility and flexibility
Managing risk
Efficiency
On the face of it this isn’t to dissimilar from the standard deliverables from most supply chain teams are faced with – the key difference in today’s market is the stakes if the team fails to deliver.
So given these objectives what are we likely to see from retail supply chains? Perhaps a focus on the following?
Cost reduction programs
Procurement teams will no doubt be under increasing pressure on acquisition costs with pressure to either hold or, in all probability reduce, prices through far greater scrutiny of sourcing practices and letting of contracts.
Close attention on all capital investments especially inventory and stocking policies, re-order levels and forecast accuracy.
Many businesses may target specific business change programs to deliver savings.
Increased focus on sourcing and the supplier
The search to sustain competiveness will include greater reliance on supplier selection including emerging markets and low cost suppliers whilst sustaining the reliance on quality and innovation.
Increased reliance on performance
Agility and flexibility rely on processes and performance – suppliers beware – perform poorly and see your position overtaken by a competitor.
The ability to manage risk will depend far greater on speed to react with a key reliance on process.
Increased reliance on management information and awareness
Never before has being able to understand your supply chain at a micro level been so important.
Closer integration within the supplier community
Achieving economies of scale and agility through greater integration and partnering
Targeted use of technology
Deploying technology to facilitate efficiency and business change – targeting reduction of overhead costs and administrative burden.
Every cloud has a silver lining
To finish on a positive note this increased reliance on the supply chain in “bumpy times” will place ever more reliance on the supply chain executive – and as such create great opportunities for career development, responsibility and increase market demand for those that can help companies through these troubled times.