Forecast Errors
Volume 2, Issue 4, January 26, 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.

Persistent Capacity Shortages Expected to Keep Cost to Ship Goods 'Elevated' 

Supply Chain Brain reported that FTR's Shippers Conditions Index remained basically unchanged from the previous months reflecting continued capacity shortages that degrade service and push rates higher. With sustained capacity tightness and fleets now announcing pay increases, the cost to ship goods is expected to remain elevated. The typical slowdown in freight tonnage during the winter months will only offer a minor and short term reprieve with the Shippers Conditions Index (SCI) expected to remain in the current range for the foreseeable future. These types of capacity issues are often causal to inventory forecast errors. Read more.

EHS Short-sighted Drives Forecast Errors

In early December LNS Research, SAP, and Environmental Leader held a presentation which suggested that in today’s business environment where operational safety and regulatory measures are under increasing scrutiny, many executives across EHS (environmental health and safety), asset management, and operations struggle with capturing the full business value of EHS software. More often than not, this is due to point solutions, disconnected business processes, and a lack of timely information that can severely limit the effectiveness of EHS programs. Leading manufacturers are addressing this challenge by focusing on effective leadership and strong cultural capabilities, supported by EHS solutions deployed as part of a global suite of sustainability management software that interoperates with other core enterprise applications. With a holistic approach, manufacturers are integrating EHS across the entire value chain, and improving in areas such as manufacturing operations management, quality management, risk, and compliance.  See our SAP Partner Integration Page.

Reducing the Risk of Supply Chain Disruptions

According to Sunil Chopra and ManMohan S. Sodhi, reporting for the MIT Sloan Management Review, for supply chain executives, the early years of the 21st century have been notable for major supply chain disruptions that have highlighted vulnerabilities for individual companies and for entire industries globally. Today’s managers know that they need to protect their supply chains from serious and costly disruptions, but the most obvious solutions — increasing inventory, adding capacity at different locations and having multiple suppliers — undermine efforts to improve supply chain cost efficiency. Surveys have shown that while managers appreciate the impact of supply chain disruptions, they have done very little to prevent such incidents or mitigate their impacts. This is because solutions to reduce risk mean little unless they are weighed against supply chain cost efficiency. After all, financial performance is what pays the bills. Read more.

Forecast Errors Automotive Kit Coverage a Difficult Calculation 

Components aplenty, not enough full kits reported Kiran Kothekar for Economic Times. Most auto companies are assembly-oriented – Thousands of components are assembled to make one vehicle. An assembly can be delayed if even a single component is unavailable or missing from the kit. The stability of a plant is directly proportional to the kit coverage (number of days of planned production for which kits are complete). Higher the kit coverage, more stable the plant. Kothekar said there has been one resounding complaint– poor kit coverage. Purchase managers run around to put together whole kits; vendors are at the receiving end of expediting requests; plant managers shuffle schedules, make and remake production plans based on the components available for assembly. Often, schedules are not stable even for a shift, let alone for a day. The scene is no different at the facilities of the many vendors that supply to OEMs. Most hold a month’s inventory despite being just a few hours away from their customers (the OEMs), who do not get the required components despite being within reach of the inventory! These are the same OEMs who claim to have, the very systems that assure flow, and stability. Read more.

Move from forecast errors to demand driven accuracy:

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