A lot of attention is paid to the value of demand planning and forecast accuracy as it relates to benefits to the enterprise. These benefits include better production, inventory, distribution and buying plans. Customer deliveries are improved, while excess inventory is reduced and operations on the production floor can perform like clockwork. The “right stuff” is purchased, built, and distributed to the right location on time and in full. However, the effect of demand planning extends upstream to the supply network as well. And, with some effort, the payback can be multiplied to not only help the supplier, but also to further contribute to the success of your enterprise. It’s like a smile, the more you give to others, the more you will receive.
Suppliers rely on the forecast of their customers to make their production and procurement plans. In my experience, supplier support for their customer is proportionate to the quality of forecasts they are provided. When a supplier has multiple customers with varying degrees of demand planning capabilities, the customers that share the most accurate predictions of their demand will receive the most support for their future needs.
For example, when the bottom dropped out of the telecom infrastructure market in 2001, I was director of raw material procurement at a fiber optic equipment manufacturer. We had implemented SAP prior to 2000 (Y2K), and had made some great strides in demand planning and forecast sharing with our suppliers. As a result of our efforts, our suppliers were receiving weekly forecasts for all of the items we purchased from them. Because we had an effective S&OP process and shared our materials forecasts, these suppliers enjoyed a fairly accurate picture of our needs. As the decline in telecom equipment demand unfolded, our suppliers were receiving messages every week that told them to back off on their production and procurement plans.
Demand for telecom equipment dropped so far and so fast, no one escaped the challenges of keeping their inventory levels in check. However, I believe we were in better shape than our competitors. In fact, one of our key semiconductor suppliers confided in me that we received favorable treatment in our rescheduling requests because we had become so reliable in planning our demand.
There are other ways to gain from supplier support as a result of sharing good forecasts. For example, an effective just-in-time program requires a level of supplier commitment that goes beyond a transaction-based relationship. A reasonably accurate forecast is a necessary foundation for a mutually beneficial JIT program. In most JIT arrangements, the supplier takes on the majority of the risk. Without the visibility into true demand provided by forecast sharing, this risk can become quite large.
What are some of your experiences with JIT programs? How did your forecasting process contribute to their success? Are there other upstream benefits of forecasting that you can share?
Former Vice President / Corporate Officer