The company makes its tiny, high-intensity laser devices at two facilities in the U.S. and also has a manufacturing presence in Shanghai and Europe. Forecasts are very important drivers of the business, but Arvind Arumbakkam, corporate master planner, says several factors make accurate forecasting difficult.
For one, nLIGHT's devices have a long lead time since a laser chip takes 13 weeks to manufacture. Additionally, the company's broad product portfolio and very wide customer base make it hard to collect and analyze sales and demand data.
To address this problem, the company two years ago initiated a sales and operations planning process. At first this seemed like a fairly simple exercise, says Arumbakkam. "We needed to know what our demand was and to make sure we had the supply to match it." As the S&OP process developed, however, it began to drive business strategy and business decisions. "Today S&OP is a critical part, not only of our supply chain planning process but of our operations planning process and such things as head count, factory capacity and capital planning," he says. "It also impacts the sales and marketing process, in terms of understanding who our largest customers are and where the greatest opportunities are and then making sure we prioritize and go after those opportunities."
The defense industry represents 20 to 30 percent of nLIGHT's business. "We make stuff like you would see in a Star Wars movie -- range finding, missile avoidance and other counter measures," Arumbakkam says. More traditional industrial applications, such as cutting and welding, and newer applications like micro-fabrication make up the remainder of nLIGHT's business.
Since implementing S&OP, forecasts at nLIGHT are no longer seen as flat, Arumbakkam says. "We realize that different products and different opportunities are in different stages of the marketing and sales cycle and need to be resourced and supported differently. For example, with opportunities and products further down the sales funnel, we are comfortable with a finished goods strategy, whereas we have to carefully manage risks around opportunities further up in the sales funnel. Having visibility into where things are in the sales and marketing process gives the forecast a whole new dimension."
Arumbakkam cites a recent new product introduction at nLIGHT involving a groundbreaking technology for pumping fiber lasers. "Creating a forecast for a new product and a new technology is always difficult," he says. Rather than developing a hit-or-miss forecast, the company took a more structured approach. Raw materials forecasts were developed only for the portion of the forecast that involved more mature components, but the company only reserved capacity for newer portions of the design. "We had much less material exposure than we would have had if we had chased the entire forecast," Arumbakkam says. "The product is now ramping up and we are in a good operational and market position to control our inventory while chasing new orders."
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