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If you stop and think about it a supply chain operates for the customer; just about every other aspect within a supply chain is designed to maximize a specific response to customer demand. Often it is simply to maximize profit but it could also be to maximize service, loyalty, consumption or something else. Laying aside what the specific goal is for the moment it still should be obvious that the better view of customer demand you have the better the opportunity to achieve that goal.
So how do we get the best possible view of what the customer wants? Or to put it another way: How do we get the best forecast possible?
The logical place to start is to generate a statistical forecast of demand, modify it as appropriate, and use it to drive the supply chain.
The history to be used is the first thing to consider. Remember that you want to simulate the customer; what history do you have that best captures that?
Usually the best history to start with is orders booked by requested ship date. But even that data needs some work. Here are some things to consider:
- Does the order reflect the item(s) the customer truly wanted or what was negotiated with order processing? How about the date?
- Does the order reflect the preferred ship location or the actual ship location?
- Are returns to the order history handled correctly?
- Are abnormal orders filtered? How?
Unfortunately, very few companies have this totally figured out. Primarily because they don't have all the data they need - and sometimes they can't get over the hurdle of history used to forecast being different from pure order history. But the better the data going in the better the data coming out. That only makes sense.
Seems that just about this time each year my wife and I get into a routine to get into shape. She does it to maintain her youthful appearance - I do it so that young kids don't try and push me back into the water while I'm laying on the beach.
So a fair amount of time is spent exercising these days. I'm feeling better and it does seem to do some good. But there's another side to good health - the chocolate covered potato chips are going to have to go if I'm going to do it right. It's not just the exercise; nutrition plays a part in my health.
Something similar takes place within a supply chain. Lean initiatives, quality control procedures, and just in time policies and procedures can only take you so far. Without the correct nutrition (data and policies) you could find that you have efficiently acquired the wrong products in the wrong quantities. And the high quality of those products will be cold comfort to you as you watch the dust collect on them in the warehouse.
Healthy data is necessary to have your supply chain operate efficiently. In order to be healthy, data must be: Being correct is easy enough to see - just don't transpose characters in your item ID, if 20 were removed from the shelf make sure 20 was the number recorded, don't order cases when you really want units, that sort of thing. We've all heard "Garbage in, garbage out". It's true - and if you do it you wind up with the original garbage plus the garbage your supply chain generated to respond to it. So don't do it.
Timely is only slightly more philosophical. The inclination is to make everything real time - if something happens, capture it. Interestingly enough, this actually makes sense for most situations - lots of ERP companies have amassed a sizable fortune touting real time data capture before spending it all on bonuses, outings, and other perks for the elite within their ranks. (You know it's true.)
But the planning process is a little different. When you're planning (if you're doing it right) you're setting boundaries. What you expect customer demand to be (plus or minus some range). What your service and turns goals should be. What your minimum and maximum inventory position should be to achieve that balance. That sort of thing.
You don't want to re-plan your supply chain every time an event happens (note that this does NOT mean you don't want to respond to it.) The right thing to do is plan periodically - usually monthly or weekly. If you plan too often you run the very real risk of resetting goals every time the wind blows; if your planning is not often enough you run the risk of missing real changes. The right frequency is a function of the type of business you're in.
An aside. I once worked with a company that operated on 10 periods per year (You know who you are.) Here's the way it was explained to me: 10 is a NRN (nice round number). So let's have 10 periods per year. Nine 5 week periods and one 7 week period right in the middle. I want to meet the person that made that happen.
Now here comes the interesting one - appropriate data. Are you using it? Sure, you really did ship 152 units of that product last month - but do you want to use that to forecast customer demand?
And that vendor has a published lead time of 3 weeks - should you use that or should you use the actual measured lead time? This could take some time to explore. We'll start next time.
