Forecast Errors
Volume 2, Issue 5, February 2, 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.
SKU Proliferation Requires Mapping the Supply Chain
Dan Gilmore, Editor-in-Chief of Supply Chain Digest talked about the inventory-to-sales ratio, as tracked by the US government. The ratio measures on-hand inventory levels against one month's worth of sales. As can be seen, other than the wild gyration in 2008-09 associated with the great recession, inventory levels have in fact been flat for a decade, even gently rising in the past few years. That despite lots of efforts to attack inventory, much technology was spent to do so. A general bias was seen in the last few years towards top line revenue growth, relatedly SKU proliferation and new product introductions, and longer offshore supply chains. The data suggests many companies may have simply hit an inventory wall within the context of their current supply chain designs. The imperative to map and model a company's supply chain took on extra urgency after the events of 2012, the earthquake and tsunami in Japan and massive flooding in Thailand, which caused huge supply chain disruptions. Shortly thereafter, a Toyota executive noted, "Our assumption that we had a total grip on our supply chain proved to be an illusion." Read more.
Under the Gun with Excess Inventory
James Covert reported in the New York Post, Smith & Wesson warned that sales and profits for the current quarter will sorely miss its earlier forecasts as demand for firearms plummets following last year’s boom. Smith & Wesson’s rifle sales dropped by more than 50 percent in the most recent quarter, fueling an overall sales decline of 22 percent, the company said. Handgun sales were down 15 percent. Last year, demand surged following the 2012 shootings in Sandy Hook, which spurred panic buying from gun enthusiasts fearing tightened regulations by the Obama administration. In response, manufacturers led by Smith & Wesson and Sturm Ruger made big bets on 2014 business that never panned out. CEO James Debney said the company is scrambling to slash inventory as the gun market returns to “a more normalized environment.” Read More.
Lean Six Sigma Looks at Eliminating Excess Inventory
According to CleanBayArea, excess and obsolete inventory write-offs are chronic supply chain problems costing businesses billions of dollars each year. Unfortunately, improvement projects that are deployed to eliminate these problems often have a short-term focus. In other words, the current levels of excess and obsolete inventory are usually addressed, but not the root causes of the problem. Often such inventory is reduced by selling it below standard cost or donating it to charitable organizations. Competing business priorities sometimes keep businesses from developing effective long-term solutions to eliminate the root causes, sometimes it is the difficulty in unraveling the complexity of the root causes. Lean Six Sigma methods have been shown to be very effective in finding and eliminating root causes, and thus preventing arbitrary year-end reductions in inventory investment. An analysis of excess and obsolete inventory often shows that its major root causes are associated with long lead times, poor forecasting accuracy, quality problems, or design obsolescence. However, these higher-level causes can be successively broken down into lower-level root causes. Read more.
ProcureCon Indirect East
Heather Grossmuller noted in Strategic Sourceror that when an executive thinks of procurement management, he or she most often considers management of direct product or service purchases. Yet, in many ways, corporations are themselves consumers, obtaining whatever necessary assets required for operations to run as smoothly and efficiently as possible. Whether office supplies, fittings and fasteners, or disposable tools, indirect materials can present a large potential for cost savings. This is no surprise to the attendants of ProcureCon Indirect East 2015 being held February 11-13 in Florida. Organizations will share thoughts on how to refresh the ideals of the indirect materials procurement process. One key area companies can see an optimized indirect procurement practice through gaining organizational support, for instance. "If you think that you are a second-class citizen versus direct procurement, then you are going to get that reaction," said Brian Davy, head of non-production procurement at Jaguar Land Rover. "We're not the poor relation of direct purchasing; what we do is fascinating and varied." A corporation cannot function on raw monetary capital alone, which is why it needs to be invested in both physical and intangible products that can improve the overall functions of the workplace Read more.
Move from forecast errors to demand driven accuracy:
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