Forecast Errors
Volume 2, Issue 7, February 16, 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.
Companies Should Move from MRP Forecasts to End to End Pull
Manufacturing companies often use a Material Requirements Planning (MRP) forecast as a basis for Sales and Operations Planning (S&OP). However, MRP and supplier forecasting produce more problems in the supply chain than they solve. Errors in shipping, receiving or inventory reporting, or production schedule adjustments, change MRP data. Often the numbers cannot be quickly updated. Gartner Research Analysts recommend manufacturing companies to engage with customers and suppliers to establish a pull process from Finished Goods to Raw Materials. This is how Gartner defines End to End Pull replenishment. Read more.
Miscalculating Demand Can Lead to Forecast Errors
Yan Krupnik reported in Multichannel Merchant that in today’s omni-channel environment, calculating demand is more challenging than ever. The huge growth in online shopping (and expensive delivery costs) has forced retailers to rethink fulfillment strategy. Retailers are trying to deliver items to online shoppers as quickly as possible, and to do this efficiently, they are beginning to turn stores into mini-fulfillment centers. Often, it is faster and less expensive to fulfill an order from a local store, rather than from the distribution center located across the county. But fulfilling orders in-store that come from both virtual and physical channels make calculating and supplying demand significantly more complex. Calculating inventory levels for in-store and online purchases separately will only increase forecast errors and inventory costs. This is why it is so crucial to calculate real demand across all channels down to the store/SKU level. Read more.
Demand Driven World Conference Next Month
Chad Smith is a leader in the Demand Driven Institute and author of a blog focused primarily on the Theory of Constraints and how to use it to maximize the profitability of any company. Smith discussed why integrating TOC with Lean and Six Sigma is the most dynamic improvement methodology available today. Recently he shared how David Proveda, Director of Demand Driven Institute, LATAM, posted a sensational improvement project titled: Reversal of Fortune - From Crisis to "Supplier of the Year" in 18 months. Proveda will be presenting the full case study at the 2015 Demand Driven World Conference in Houston, Texas in March 2015. Here is a link to the conference registration:
From Crisis to “Supplier of the Year” in 18 months
El Exito, the largest retailer of Colombia, awarded MIC, “Best Supplier of the Year” in the category of textiles/clothing. MIC was selected amongst 500 companies. What is even more significant is how far MIC came along in total performance in just 18 months. MIC produces children’s garments under licenses from companies like Disney and Mattel. The company struggled with the typical consequences of the regular Push-and-Promote (which Proveda calls Push-and-Pray) mode of operations. MIC got to the point of having negative cash flow and they declared themselves in crisis. Enter DDMRP (Demand Driven MRP). DDMRP moves from the traditional Push model aimed to reduce unit cost, to a Pull based model that strives for protecting and increasing the speed of flow of materials. Information is a significant and radical transformation for any company. Read More.
Move from forecast errors to demand driven accuracy:
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