Can anyone accurately predict demand right now?
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Can anyone accurately predict demand right now?
PCWorld has an article entitled “Nintendo Wii shortage turning into a glut for the holidays?“ For the last couple of years all we’ve heard about is the Wii shortages around the holidays due to incredible demand for the product. I can relate, we tried to find a Wii for months and had to have my parents buy one in another state. Then we wanted to get the Wii Fit and spent weeks watching the flyers, calling the local stores, etc. to try to find one. Now, with the the state of the economy and declining consumer demand, there’s talk about a glut of Wiis???
Over at Ben Worthen’s Wall Street Journal Business Technology blog he has a post entitled “Intel junks its forecast earlier than expected.” In it he talks about Intel changing its forecast within a month of announcing its previous quarter’s results.
So, it brings me back to the question - can anyone accurately predict demand right now?
Many companies rely heavily on the past to predict the future. Statistical forecasting is used to analyze the past and then try to determine what the future demand will look like. These methods are never completely accurate, and right now they are really off the mark. And, what happens when things start to get better at some point in the future (and they will…at some point)? How accurate will the past be then at predicting how demand will improve when the economy regains its footing? It won’t be…again.
So, what to do? The past is a good input, but it can’t be the answer - ever. Companies need to combine that with a much more collaborative process of demand planning with their key customers and more accurate data reflecting true demand (most companies have a huge lag in sensing true demand). But, most importantly, the real key for supply chain management professionals is how quickly they can react to changing demand. And, in supply chain management, reacting means being able to re-balance supply and demand as the demand picture changes - no matter which direction.
Most companies struggle with this. For years, companies have had one team produce a demand plan and another create a supply plan. These separate departments rely on separate planning tools. The demand planning team uses tools that try to predict what demand will be (often relying heavily on the past) and then send a demand plan over the wall to the supply planning team. This team takes the demand plan as input and produces a supply plan trying to match the demand plan. The reality is that the actual demand never really matches the demand plan and the supply plan was never really to deliver to the demand plan in the first place. So, the company is left to deal with a bunch of misalignment issues that are exacerbated by the fact that both demand and supply continue to change on a daily basis.
Now imagine what this is like in today’s economy. Predictability has gone out the window and there’s mounting pressure on supply chain management professionals to reduce costs in the midst of all this change. It’s not easy.
The key to surviving, in fact thriving (meaning distancing yourself from the competition) in this environment is to have responsiveness and agility be core competencies of your company. When misalignments occur, it comes down to quickly sensing them, understanding their impact, developing a set of action alternatives (course corrections) and picking the right one - the one that best supports your business objectives. And, this needs to be done by your supply chain staff since they have the insights to make the right judgment calls.
To do this quickly and effectively, they need to have the right tools to enable quick and decisive actions. There are ways to accomplish this, but the key is to build a culture, metrics and tools to support this philosophy at the grassroots level of the organization.
Tags: demand planning, Supply chain management, supply chain planning
