Forecast Errors
Volume 2, Issue 23, June 15, 2015

A forecast error is the difference between the actual and predicted value. The consequences are expensive inefficiencies that can be resolved with lean manufacturing technology.

Do Your Forecasts Hurt As Much as Help?

At the heart of supply chain visibility is a clear understanding of customer demand. Unfortunately, many manufacturers rely on frequently changing sales forecasts as the primary means for tracking customer demand. Such forecasts typically err on the side of optimism and create excess-inventory situations. As those forecasts become more realistic, customers frequently delay, cancel, or make changes, which can result in shuttering production lines, running expensive overtime operations, absorbing the cost of excess inventory and suffering penalties due to changes in shipping plans. Get everyone on the same page with true visibility. Read more.

Matching Supply to Actual Demand

Chris Cunnane noted in Logistics Viewpoint that inventory optimization technology enables companies to balance their inventory levels with customer demand. Market conditions, such as economic factors, supplier relations, and fluctuating and seasonal demand for products, impact inventory management. However, the use of multi echelon inventory optimization software can help companies to identify the appropriate amount of stock needed at stores, warehouses, and distribution centers. By carrying less physical inventory, companies can reduce their inventory carrying costs and become more profitable. By matching supply with demand, the customer is able to find the product they need / want, and the organization can fulfill it through the appropriate channel. This is how companies get closer to matching manufacturing output to actual demand. Unfortunately, this is a technology that is under-utilized by too many organizations. Read more.

Next-day Delivery Increases Forecast Errors

Russ Meller said in SupplyChain24/7, companies that recognize and respond to the shift in power to the customer are winning hearts and wallets; the key is not to get hung up on trying to save a penny. Almost every company is working to reduce the time it takes to get an order to a customer’s home or to its stores. A recent survey showed that 65 percent of buyers want next-day delivery. And another survey showed that 24 percent of online buyers said same-day delivery was important to them. All of this is putting pressure on retailers as well as industrial distributors to rev up their cycle times for fast, faster, and fastest fulfillment times compared to their competitors. Faster may mean more forecast errors. Read more.

Move from forecast errors to demand driven accuracy:

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