How Fujitsu Achieved a 30% Reduction in Inventory from Segmenting Demand Planning by Value and Forecast-ability

fujitsuIn 2000 Fujitsu Network Communications (FNC) re-engineered their forecasting process and spent the next five to six years focused on removing non-value added activities and improving forecast accuracy. During this period the company launched several new products and discontinued others, added new partner products, channel partners, and industry verticals. In this rapidly changing environment, FNC improved forecast accuracy while significantly reducing the time and number of people needed to generate the monthly forecast. Accuracy increased on average by 20 points, time was reduced from four weeks to two weeks, and the number of people required decreased from twenty-five to five.

The primary driver for the forecast initiatives was to maximize the return on inventory investment. However, in 2006, FNC started to see diminishing returns on these activities. The cost was exceeding the benefits or the improvements were so small they didn’t create measurable improvements in service levels or inventory turns. At this time, FNC began to think in terms of demand management rather than forecasting. Demand management is a three legged stool consisting of removing non-value added activities, reducing demand variability, and increasing operational flexibility. Our approach was to segment demand planning activities by value and forecastability.

The general purpose of segmenting planning strategies is to mitigate risk. At Fujitsu, we segment the demand planning strategies so that we can apply the appropriate inventory management scheme to each part based on its value and variance characteristics. On average, we have realized a 30% reduction in inventory cost per product while maintaining or improving service levels. These improvements have also created additional savings for our customers in terms of inventory cost and improved service levels. These savings are extremely important in a commodity market where we need to compete on service and survive on thin margins.

Have you had any success with such strategies?  Your comments and questions are welcome.

Barry Chapman
Business Product Manager – Demand Management
Fujitsu Network Communications, Inc.

Hear Barry speak on demand planning segmentation strategies at IBF’s Business Planning & Forecasting: Best Practices Conference in Orlando Florida, November 4-6, 2013

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