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DEMAND PLANNING:
OPTIMIZING OPERATIONS ACROSS THE SUPPLY CHAINDEMAND PLANNING TECHNOLOGIES REDUCE INVENTORIES, SPUR COLLABORATION
John Brandt
Compliments ofDEMAND PLANNING
Demand planning software packages can help directions-for our suppliers and for our customers," manufacturers to: says the CEO of a multibillion-dollar high tech manufacturer. "In fact, we've been wrong pretty . Establish baseline sales forecasts, incorporating massively. With sales forecasting, it's sort of, why multiple inputs; bother? The people who do the forecast don't know . Perform sophisticated analysis that improves their because the customers don't know." use of human and capital resources;. Optimize pricing capabilities; and Manufacturers and distributors routinely accept the . Better understand their markets and customers. idea that sales forecasts will err by as much as 10%, and often 20% or more. In some cases, companies have not Yet to get the most out of these function-rich tools, only accepted the fact that forecasts are "soft," they've manufacturers must be willing to reorganize their begun using software tools to enable them to track the planning processes-and to share the resulting level of variance over time, adjusting their materials insights with supply-chain partners and customers. procurement, operations, and distribution plans accordingly. "We track our forecast accuracy, so that we can see a forecast wandering out of the norm," says PREDICTING THE FUTURE the director of production planning and forecasting at a large packaged foods manufacturer. "We want to know exactly the number of weeks we are above How does BMW know how many Mini Coopers it or below a certain accuracy level in our forecast. will sell in North America? How many Priuses should That way, we build up a consistent trend of error." Toyota build to meet demand in the U.S. this year? Worldwide? When is it time to tweak production- Granted, this food manufacturer has a special business upward or downward-to re? ect a change in need - to minimize the amount of product lost due to the market? expiration at different warehouses. Adds this executive, "The software we are using gives us the ability to look The short answer to all these questions is: No one at the freshness level and inventory for each product knows for sure. The long answer is: Everyone needs at different warehouse locations."and wants to know. His company is able to adjust product levels at its That's why demand planning exists. warehouses as needed, while avoiding losses due to product expiration. This feedback capability allows the Demand planning hasn't gotten the attention that business to tweak both production and inventories enterprise resource planning systems (ERP) or customer for maximum pro? tability. relationship management (CRM) have received in recent years. But that's not to say it isn't a sore spot These problems are similar to those experienced in for many in the manufacturing and distribution other industries, including high tech and electronics, communities. "When I speak in front of industry where chips, subassemblies, and even ? nished products groups and ask how many people are happy with their such as computers have limited effective shelf lives. sales forecasts, I don't see any hands at all," says John Here, too, inventories must be managed in such a wayPavain, president of Norwalk, Connecticut-based MaxQ as to maximize sales and minimize "spoilage" as Technology, a developer of demand management ® products become obsolete or unwanted. systems and a Microsoft partner. "Demand planning is an area that most companies need help in." In industries such as steel, excess ? nished-goods inventory ends up as expensive scrap later melted down to ? ll new orders. Meanwhile, POOR FORECASTING = POOR PROFITS steel producers lose production time and waste labor producing and storing the unwanted inventory, some of which Whether it's for consumer packaged goods, industrial was rejected because its production was too late for manufacturing, high tech and electronics, or automotive customer demand. Indeed, an entire industry-the demand, sales forecasts often lack the sophistication steel service center-has arisen to cater to the needs needed to optimize both operations and pro? ts. of steel customers who couldn't wait for their orders to "We've been pretty wrong on forecasting-in both
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