Inventory Fitness: FAQ – Question 8 of 14

During the recent webinar, Inventory Fitness – Governance, Targets, and Segmentation, we took audience questions and answered them.

Here are some issues that people in industry face and are interested in finding a solution to!

Question 8 of 14

Question:
What should you do if your demand planning is very inaccurate?

 

 

Answer:

Yeah, this could be a webinar in and of itself, so we’ll try to keep this brief. First off, all demand planning has inaccuracy.

It’s simply a matter of degree. So, what we need to determine is the “why” of inaccuracy. Is it timing? Is it quantity?

Is it both? Is it seasonality?

Are you predicting something event-based or recurring? If so, in which case assumptions can be used? And is there anything that can be done with that information?

In short, don’t let what you don’t know stop you from acting on what you do know. Chances are you know a lot, and you can likely get to know more.

One critical way to do that would be customer collaboration.

Can you get closer to your customer? Even incrementally closer? Every little bit helps. Can you get intermediate commitments and schedule agreements?

And, while we’re not questioning your commercial team, can your commercial team ask those tough questions? They’re responsible for the relationship with the customer. And, in many cases, we found if a company really pushes and gets honest with their customer, even to the point of maybe sharing savings with them, significant ground gets gained through that collaboration, and each little bit of it means something to you.

Yeah. And it’s interesting. If, for example, you find that your forecast is particularly inaccurate, one of the things that you can do is segment your inventory and segment your customers. And instead of asking the questions, “What level of customer service do I want? What level of inventory do I want?” Ask the question, “How much inventory am I willing to dispose of?” And you can look at it as an investment in each of those nine box segments or an investment in the market, so you’re saying, we don’t have an accurate forecast, but we’re going to make a bet that we can capture a certain amount of demand. And if it doesn’t materialize, then we’re willing to dispose of the product when things don’t work out.

Yep. And, I think each of these approaches really relies on it. It assumes some discussion on how demand is supplied, but it relies on knowing how demand is supplied. Can you go to make to order? Can you go to configure to order? Can you improve the flexibility of your supply chain?

Would a push system work?

Are you okay with stockouts? And that’s what Kai is saying. Are you okay with too much inventory because you’re going to manage that service level and maybe throw some away? Are you okay with that? Make those decisions upfront.

Because then, getting your demand plan to be more accurate by getting closer to the customer makes an even bigger difference. So, it’s an interesting challenge. We face this a lot with multiple clients who either do or don’t do decent forecasting.

There’s a method for making that into demand planning, which is something we can talk about. But again, we can do a whole webinar on this alone. I think that probably gives you the high-level view.

Remember, we’d be happy to chat with you about any of this in more detail. 

And if you’re interested, check out our schedule for upcoming business process improvement courses that we offer throughout the year to help you achieve business excellence. 

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