Posts Tagged ‘demand planning’

If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!

Last month, I posed the question “Can anyone accurately predict demand right now?” and referenced an article about the Nintendo Wii.  Nintendo was betting on growing holiday demand and increased supply by 50% compared to last year.  Others were talking declining demand and inventory gluts because of the economic situation.  Guess what – neither predicted the right demand (see “Nintendo Wii repeats gaming history again: defeats supply chain critics“).  Certainly there is no glut problem, and in fact looks like Nintendo underestimated again.  Who would have guessed?  And therein lies the problem….

I bought my first ‘enthusiast-level’ digital SLR last week. Hardly interesting, I know. You’re probably thinking “good for you, John!”, and reaching for your mouse to seek more quenching content. What I do believe to be interesting is how I came to make my selection, how I was able to get the best deal possible, and how those methods might be affecting the brand owner’s supply chain, and how it might alter how they look at demand planning and demand management in general. I’ll tell you the story, and then maybe you can comment on where this will take brand owners in the future.

I’ll start by killing the suspense – I bought a Nikon (pronounced knee-kon, for those of you who have never had the misfortune of mispronouncing their company name while visiting their headquarters in Japan). Specifically, it is a Nikon D90 with an 18-200mm f/3.5-5.6G IF-ED VR lens and the SB-900 Speedlight. I just had to add the grip attachment to give it that “photo-journalist”  look-and-feel (a guy thing? Maybe). Anyway, this decision started with a conversation with one of my close friends, Andrew, who has spend 17+ years as a serious hobbyist in photography. As you would expect, people tend to turn to their community of trusted friends and family for advise, and generally give high value to what they have to say. With Andrew, I learned more in 1 hour then I ever thought possible – starting with what questions I should be asking myself, to what products and technologies existed today. The most valuable bit of information I got from him, however, was a list of “strangers” that I should trust, and where I might find them.

It didn’t take me long to have mouse-in-hand, fingers-on-keys, and I would find myself engrossed in the opinions of Thom Hogan, and Gordon Laing, editor of Camera Labs. It didn’t stop there – I went on to read scads of opinions posted by hundreds of strangers, each equally passionate about their points of view. There were over 25,000 people in the dvinfo.net community to leverage; then the massive photo.net which boasts over 3,000 posts per day! Indeed, there is a wealth of detail, opinion, and what I perceive to be unbiased reviews to chose from – all well outside the control of the brand-owners themselves. I knew well in advance what I would like, and what compromises I would live with before choosing this product, and I had gotten there having never visited the Nikon website, or leaving my home office to visit a local store! Of course, manufacturers are providing their goods to experts like Thom and Gordon in the hopes they give their products a favourable review (I would want to believe without incentives to do so). They would have far less (if any) influence on the contributors of the hundreds of other massive communities eager to publish and defend their opinions in public forum.

Before leaving for “the store” to buy one, I was able to find the lowest price on the internet, giving me some indicator of “how low can they go” while leaving enough margin for the house, and enough for the maker. Without disclosing the end purchase price, suffice it to say that I am very pleased with what I paid, and wildly happy with the unit itself.

You might look at this story and think to yourself that marketing and branding is what is most affected by my method of buying a camera. I can’t help but wonder how my buying habits will change a brand owner’s demand planning process. I would posture that planning will become less relevant in the future, and responding to plan variance will become more so. Agree? Disagree?

Who says supply chain management can’t impact top-line performance?  Just a couple of weeks ago I wrote a post entitled “Can anyone accurately predict demand right now?“  Now, today’s Wall Street Journal is running an article entitled “Better scratch that Kindle off your list.” (subscription required).

According to the story, “For the second holiday shopping season in a row, Amazon.com Inc.’s Kindle e-book reader is out of stock, and more of the devices won’t be available until mid-February, at the earliest.”  Ouch!

Ironically, Amazon thought it had plenty in stock until Oprah endorsed the e-reader on her show.

While not every business has to worry about Oprah messing with their demand planning process, the reality is that it’s become exceptionally hard to accurately forecast demand today.  There are several things you can do, but two most notably are to focus on improving your demand planning/forecasting process or focus on improving your demand management processes (identifying misalignments and balancing demand and supply).  The reality is that you should do both, but the sad truth is too many companies focus predominantly or solely on the former.  A better approach would be to acknowledge the high degree of uncertainly in accurately predicting demand and making sure that you are best-in-class at dealing with demand uncertainty.  Excellence in demand management ensures you are a market leader whether you get your forecast right (which of course is the goal) or not (which of course is the reality).

Given the demand uncertainty in today’s market, there’s no better time than now to be establishing excellence in demand management.

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.

IndustryWeek recently published an article entitled “Demand Planning: A Game of Chance or Strategy?“  A couple of things jump out when reading this article.

1. Need for better customer collaboration – They key to getting better forecast accuracy is to really understand your customer. For vendors, it’s the customer who holds the trump card … they are the ones who control what ultimately is going to happen (i.e. they are the ones that are selling your product). As a vendor you have to get into their heads and understand their business – who they sell to; how much they sell to their customers; how much you sell to them; what forecasting bias do they have; etc. It’s only by collaborating with your customer will you be able to understand them. Granted the unexpected will always happen, so having a good process in place to respond effectively and efficiently is important as well.
2. Need to break down the silos – far too often things are flung over the wall for someone else to “deal with”. For example, forecasts are flung over to the master schedulers to make happen, inventory policies are set by the inventory management group … seems tough to figure out how this type of execution can ever work. Groups need to get together and coordinate their activities.
3. Need to measure – it’s well and good to drive to the best forecast while respecting inventory policies; you have to take various measurements. For example, measuring forecast accuracy for each customer on a continuous basis allows you to adjust their forecast. In other words, it will give you a sense of their forecast bias.

Is our e-mail centric world the cause of not communicating with one another? Are we now simply content to say “I sent you an email”? Email is a great collaboration tool … the ability to communicate globally 24×7 has really extended a vendors reach. But in the end this is about collaboration – the ability to get together and solve issues … it’s not about sending something over the wall. Applications that integrate demand data, supply data and product data into a single instance and provide views that are specific for each of the groups will allow for far better collaboration – resulting in better customer satisfaction.