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SupplyChainBrain Power Lunch: Should We Forget About the Forecast?

Is the forecast really dead? Should companies instead shift their focus to acquiring the ability to respond quickly to whatever happens in markets? A SupplyChainBrain Power Lunch discussion with Jim White, vice president of central operations with Applied Materials; Jake Barr, chief executive officer of Blue World Supply Chain Consulting; and C.J. Wehlage, vice president of high tech solutions with Kinaxis.

SupplyChainBrain Power Lunch: Should We Forget About the Forecast?

Product lifecycles are shortening to a “tremendous” degree, says Wehlage. Companies are looking to strike a balance between accurate forecasting and responsiveness. At the same time, they need to acknowledge that the forecast will never be completely accurate, and that the inevitable errors must be corrected by the ability to meet actual demand on a timely basis.

The role of forecasting is being clarified within the organization, says Barr, “but it’s not the end-all and the be-all.” The real purpose of forecasting is to engage in long-range financial planning. It can’t become the whole basis of running the business on a day-to-day level.

Barr said some companies have an erroneous conception of sales and operations planning. Its primary purpose is to identify and take advantage of new market opportunities, not to match demand and supply. “Folks translate it today into a place to elevate things that they can’t resolve within normal trading horizons,” he said.

SKU proliferation poses a growing challenge for retail manufacturers and merchandisers. But companies don’t need to engage in a “free-for-all,” whereby they continuously track every single product. “In reality, you have to review less than a couple of percent,” Barr said. “Twenty percent of SKUs make up 80 percent of your gross margin.” For the rest, “you just need to set some base conditions.”

White said companies are finding it necessary to both stretch and shrink their planning horizons. Suppliers need to acquire greater visibility of demand in order to engage in capacity planning. But manufacturers must also be able to adjust the forecast in line with unexpected demand shifts, essentially bringing planning down to the execution level.

Barr says planning has undergone “a true morphing” over the past five years. Companies are now depending on their operating models to be “the cash engines to drive growth.” The trend has led to greater use of “what-if” simulations and mid-range tradeoff scenarios. Such tools “weren’t on the table before.”

It takes more than technology to foster agility within the organization. “The I.T. piece follows; it does not lead,” says Barr. “You have to first figure out what is the reaction time you require to make your revenue and profit model. You change the business process, then you determine what technology you need.”

To view the video in its entirety, click here

Keywords: supply chain, supply chain management, supply chain planning, S&OP, sales and operations planning, retail supply chain, inventory management, inventory control, supply chain risk management, Jim White, vice president of central operations

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