“The Perfect Pull Supply Chain: Why The Elimination of Forecasting Decreases Inventory and Increases Availability”

Chaman L. Jain, Ph.D

Chaman L. Jain, Ph.D

I recently came across this white paper with the above title, written by a company called AGENTRICS, which I found  very strange and contradictory.

Here are four reasons why:

1. The paper claims since we cannot forecast (meaning 100% accurately), forecasting is unnecessary. The practice of forecasting has caused and will continue to cause too much inventory and thus fails to provide the degree of availability that the market demands. It is a strange belief for a number of reasons: a) We need forecasts even if they are less than perfect, because every plan is based on them. Of course, the more accurate the better. b) forecasts do improve to some degree if we work on them.

2. The paper emphasizes only the modeling aspect of forecasting. Models are only one part of forecasting, the other part is the process—the Consensus Forecasting, S&OP and CPFR. I have seen study after study showing how much improvement they made in forecasts and inventory by using such processes. Furthermore, the fact 79% of the companies use Consensus Forecasting, 70% of them S&OP and 36% of them CPFR, they must have found something to justify. (These numbers are based on the survey done by the Institute of Business Forecasting and Planning—IBF) In fact, I don’t know any company where forecasts deteriorated and inventory levels increased by using these processes.

3. The statement of “More inventory equals less availability” does not make sense. This implies that demand planners don’t know what they are doing. Furthermore, as I said before, forecasts do improve when you work on them. With that you not only get the right inventory, but also manage to reduce it.

4. I also found the approach echoed in the paper self contradictory. Its first step to determine inventory is to determine display stock levels (stock the retailer must hold to serve a customer best), using marketing considerations. How can one determine such levels without forecasting? It further states that “each link in the supply chain should strive to produce only what the downstream link consumes.” It is great, but again how can one determine what downstream link consumes (which I believe is sales to end consumers) without forecasting? Of course, one does not need to forecast if the lead-time or cycle time is zero, which is often not the case.

Your thoughts, comments, similar experiences are welcome.

Chaman L. Jain, Ph.D
Professor, St. Johns University – New York
Chief Editor, IBF’s Journal of Business Forecasting

4 Responses to “The Perfect Pull Supply Chain: Why The Elimination of Forecasting Decreases Inventory and Increases Availability”

  1. Hi Chaman:

    I am interested in this paper, too.
    Forecasting usually is based on past trends.(using historical data), there is no 100% accuate forecasting. However, I believe if we catch the trend 80%, forecasting based on that can lead to wise decisions.

  2. Greetings,
    We had this White Paper shared with our logistics team earlier this year. It is a theoretical future state best case scenario. It requires complete supply chain visibility from production to consumption. It requires lean supply chain capabilities with extremely small batch sizes. They call this view “Perfect Pull”; I think that it should be called the “Perfect Puff”.

    At first read it does catch your attention on wow what are we doing wrong. Unfortunately I am one of those detail oriented people who actually has to make these things work. By the way this is not the first time that I have been told by a “Lean” expert that forecasting is a non-value added process. In reality as long as your lead time is longer that the time a customer is will to wait for your product you will have to have some type of forecast! It was not mentioned in the paper but when we were working on our lean implementation here we were told that we would have to stop promoting products because one of underlying principles of Lean or Pull supply chains is to have steady demand.
    I did work in the apparel industry for many years and we were able to make investments in systems and technology and implemented the Toyota Sewing System and was able to pull off a process very similar to the one described in their white paper for a small part of our business. It worked and it was a point of differentiation for us.

    In CPG and especially in the process world these “Pull” concepts start falling short. Most lack clear visibility thru the demand chain, we have highly promoted products with highly fluctuating demand, we have highly inflexible process batch sizes.

    Perfect Pull is a perfect world solution and it brings up many great opportunities for us to strive for but until we are able to put a “replicator” from the starship Enterprise in every store we will have to just keep forecasting.

    Scott Roy

  3. The forecast should be used as a guide by which to negotiate inventory pricing and discount for bulk purchase. Long Lead items do not exist in a system such as this because items of that nature should be based on customer tolerance for safety stock levels held by you.

    If you base production of inventory containing long lead items on your constraint you will hold and order based on the amount of time it takes the consumer to consume, and the amount of time it takes you to produce. If done this way you will have a constant flow of that inventory based on three things customer consumption, your production lead times and your perceived level for safety stock.

    You will produce based on demand pull, and your tolerance for your own safety stock levels. What will be generated is a continuous flow of any long lead item that flows into your product.

    Tony E. Madison

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