Lean supply chain, Pt. 3: accountability in demand forecasting

Demand forecasting is problematic for a number of reasons, but its importance in the lean supply chain is obvious. Getting control of the forecasting process may require a re-thinking of who is contributing to the process within the enterprise and how various contributors approach forecasting.

Process and planning expert Jakob Bjorklund has suggested that one issue that may compromise the accuracy of demand forecasting is accountability for the process.

“It is imperative,” he said, “that a manufacturing enterprise assign demand forecasting to an independent party within the company that has more of a holistic point of view than would sales, manufacturing or any other specific department.”

Increased demand forecasting accuracy means lower inventory levels and enhanced customer service, he said, and those are very desirable goals – but in pursuit of those goals, many companies disseminate responsibility for demand forecasting across all of the departments it affects. This is an innocent mistake, but it can introduce error in forecasting.

In Bjorklund’s example, demand forecasting in the hands of the sales department may lead to overly optimistic projections; manufacturing operations, on the other hand, may introduce overly cautious projections, erring on the side of conservatism.

Getting everyone’s input into the process is not a bad thing in itself, he said, but in the end, no single individual or department ends up being accountable for the accuracy of the demand forecasting process, and this is a problem: “It is not surprising that, as a result, this crucial role tends to fall between chairs in many enterprises,” he said.

Identifying a proper accountable authority within the company to master and monitor demand forecasting, he said, is a crucial component in improving forecasting accuracy.

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Lean supply chain, Pt. 2: harmonizing customer service with manufacturing

Every manufacturer strives to cultivate efficiently – yet responsiveness to customers is equally important. ERP expert Jakob Bjorklund has pointed out that these two imperatives can often be in conflict.

It is common, Bjorklund noted, for manufacturers to produce in very large quantities, which, despite creating the challenge of storing surplus product, can generate efficiencies in raw materials purchases, optimum performance from manufacturing hardware, getting the most from personnel, and so on, yielding the lowest-possible cost-per-unit on product. However, this kind of dedication to efficiency can cause scheduling of manufacturing to synchronize with supplier schedules, rather than consumer demand.

Decoupling from consumer demand, he said, can cause manufacturing to respond poorly to periodic fluctuations in consumer needs; in effect, the goals of manufacturing operations can come into direct conflict with the goals of the sales organization. Commitment to high-volume production can cause availability of some products to slip, due to inventory shortages tied to the production schedule.

Bjorklund proposed that compromise is the key to reconciliation in this scenario, and that the benefits to customers outweigh the cost of supporting some manufacturing inefficiency.

“Going forward, manufacturing would not be making unilateral decisions about batch sizes and production schedules, circumventing their natural tendency to focus on manufacturing efficiency,” he said. “Instead, they would now be obliged to produce only enough to cover a certain period of time based on the sales projection. That means that every product will now be produced more frequently and in smaller batches.

“To encourage this behavior, other metrics and KPI’s can be introduced that are more holistic and based on customer service levels and inventory turns, rather than just production output. The higher the speed through the supply chain, the higher the inventory turns and the less capital tied up in inventory at any given time. At the same time, the faster the raw materials move through the supply chain, the less obsolescence you have and less expired materials you have.”

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Lean supply chain, Pt. I: letting suppliers in

Letting suppliers participate directly in logistical planning, sharing data and analytics with them, is a solid strategy in general. But there are some hidden benefits that follow from integrating suppliers into in-house processes and systems.

Process and planning expert Jakob Bjorklund has noted that a lack of synchronization between manufacturing scheduling processes and external supplier scheduling processes can create bottlenecks that inhibit overall supply chain efficiency.

“Technology can play a vital role in eliminating this constraint,” he said, citing a useful example of supplier-manufacturer scheduling conflict. Packaging of manufactured products, if outsourced, can be problematic if the supplier of the packaging doesn’t have advance knowledge of how much product will be produced, when the creation of the packaging takes longer to produce than the product itself.

How can technology eliminate the constraint? In Bjorklund’s example, the manufacturer set up a portal for suppliers and published its production plan and schedule, so that the packaging supplier (and other vendors) could set their own schedules accordingly.

Such measures have an obvious positive effect on supply chain efficiency, and the increased efficiency alone would justify the manufacturer’s investment in designing and deploying the portal. But Bjorklund pointed out additional, less obvious benefits, including greatly reduced administrative effort and real-time communication between manufacturer and supplier, both in coordinating activity and resolving disruptions.

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IoT empowers the supply chain in many ways

The Internet of Things, increasingly ubiquitous in business, manufacturing, and consumer activity, can empower the supply chain in a number of significant ways, according to Tony Kontzer, manufacturing technology analysis for TechTarget.

IoT’s impact on some of the more prominent features of supply chain operation, such as awareness and visibility, are increasingly apparent. But Kontzer argues that this is just the tip of the iceberg.

Sensors that monitor manufacturing equipment are not new, but adding their input to physical plant management can increase efficiency, fault tolerance, and analytics, he argues.

Kontzer quotes George Favalaro of PricewaterhouseCooper, who made the case for real-time communication between machines in production environments, for the purpose of identifying inefficiencies and equipment wear/failure when they happen: “If your equipment is starting to wear and is drawing more energy, you want to know that, and you don’t want to know it in three or four months, you want to know it right away.” This real-time sensory communication can be leveraged for climate adjustment, identifying leaks and other useful savings.

Detection and prediction of malfunctions increases the value of IoT in manufacturing, enabling machines to be shut down when failure is imminent, making the environment safer and minimizing the impact of a shutdown. Moreover, IoT can increase the accuracy and improve the logistics in equipment repair by providing additional information on an equipment failure up front.

Finally, adding this data to the overall flow of information between supply chain partners can be invaluable in disruption management, minimizing the impact of manufacturing downtime and production shortfalls.

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