Executive Briefings

Effectively Manage Supply Chains by Effectively Managing Demand

In order for a company to effectively manage its supply chains, it must effectively understand--and manage--demand. Unfortunately, often there is little attention paid to the art and science of forecasting future demand. Often the entire process consists of asking the salespeople what they think they will sell next year--a number that is usually influenced by their natural inclination to "manage expectations."
Another common forecasting disaster is when the forecast is simply determined by the firm's financial targets. In this scenario, the forecast is created to assure Wall Street that financial targets will be met, without regard to the existence (or lack of existence) of true demand in the marketplace. Excellence in forecasting future demand requires a disciplined process that combines analysis of historical demand (statistical, or quantitative forecasting) with careful analysis of expected changes in future demand patterns (judgmental, or qualitative forecasting). This excellence also requires a spirit of collaboration among those functional units that are responsible for generating and managing demand, as well as the discipline that comes from strong metrics and performance rewards.
Source: Industry Week, http://industryweek.com

In order for a company to effectively manage its supply chains, it must effectively understand--and manage--demand. Unfortunately, often there is little attention paid to the art and science of forecasting future demand. Often the entire process consists of asking the salespeople what they think they will sell next year--a number that is usually influenced by their natural inclination to "manage expectations."
Another common forecasting disaster is when the forecast is simply determined by the firm's financial targets. In this scenario, the forecast is created to assure Wall Street that financial targets will be met, without regard to the existence (or lack of existence) of true demand in the marketplace. Excellence in forecasting future demand requires a disciplined process that combines analysis of historical demand (statistical, or quantitative forecasting) with careful analysis of expected changes in future demand patterns (judgmental, or qualitative forecasting). This excellence also requires a spirit of collaboration among those functional units that are responsible for generating and managing demand, as well as the discipline that comes from strong metrics and performance rewards.
Source: Industry Week, http://industryweek.com