Benefits of Forecast Sharing With Your Suppliers

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Jack Harwell

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?

Jack Harwell
Former Vice President / Corporate Officer
Radio Shack

5 Responses to Benefits of Forecast Sharing With Your Suppliers

  1. There is alot of “assumptions” in this article that forecasts can be accurate enough to provide beneficial sharing opportunities with suppliers. How does the process of “Pull Replenishment” fit into the thesis that was outlined?

    Howard W. Coleman

  2. Jack – it’s a very relevant point. Given that many manufacturers are highly dependent on their suppliers for the achievement of customer delivery dates it’s essential that suppliers know as much as you do. It’s surprising how few people take advantage of the capabilities in ERP systems to generate forecasts for suppliers.

    Aled Williams

  3. I have always found it critical to share forecasts with suppliers for a number of reasons. Just a few:
    1) Allow supplier to have sufficient inventory of your commodity to provide your needs JIT
    2) Share seasonality and/or environmental fluctuations
    3) Optimize supply chain / transportation costs
    4) Show true ‘partnership’ in allocating resources and costs
    5) Supplier will often build ahead for future needs predicated on the forecast at no (or shared) cost to you
    6) Leverage the information when expedited freight may be required due to a supplier shortfall. (‘we told you we’d need these’)
    7) foundation for frequent, quality communication (business reviews)
    8) Critical to the entire JIT process upstream and downstream

    Kurt Fischer

  4. Howard,

    You are correct, forecast must be reasonably accurate to be beneficial. As stated in the article, supplier support is typically proportional to the quality of the forecasts.

    These forecasts are especially important in a pull replenishment system. Many pull systems work in timeframes that are much shorter than the actual lead time of the parts/product that is being pulled. This is usually addressed with buffer inventory, which is calculated and monitored using the customer’s forecast.

    The forecast is also helpful in planning capacity and longer lead time raw materials, so the buffer inventory is supported and pulls are fulfilled.

  5. If I understand your comment correctly, my response is that capacity management is a key benefit. Capacity is a major concern with our supply base and it is critical to provide information to our key suppliers to make them aware of schedules and long term forecasts for ensurement of continued product delivery and support to all of our manufacturing lines around the world. We hold quarterly or bi-annual webcasts to our supply base to provide updates to them regarding economic outlooks, production schedules and long term forecasts.

    Shellie Atkins

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