Demand Forecasting and Product Ordering
Companies may choose to set up their forecasting
model in essentially one of two ways:
- Non-consensus forecasting
- Consensus forecasting
Whichever method they choose the sales forecast is
arrived at through a process involving several
functions. This means that sales, marketing and finance
are usually contributing in addition to supply chain.
The process is usually supported by a forecasting tool.
In the non-consensus system the financial forecast
(business plan, budget etc) is separate from the
logistics forecast. There may be some checks to ensure
that they are not too far apart, but essentially they
are two set of numbers, with the financial forecast not
necessarily available at individual product level.
In the consensus forecasting method there is only one
set of numbers (forecast) for both logistics and
financial purposes. This has to be down to individual
SKU (stock keeping unit) level to ensure usefulness for
ordering purposes. Financial and reporting
considerations may distort the forecast from a logistics
point of view.
Companies may choose to set up their demand model in
essentially one of two ways:
- Self-managed inventory (SMI)
- Vendor (supplier) managed inventory (VMI)
Is is possible to have a mixed model, this is however
always essentially based on one of the above methods.
In the SMI concept the responsibility for the
inventory will stay with the company. . Based upon the
forward sales plan logistics is responsible for
converting these into actual orders taking into account
the existing inventory and stock in transit. The
supplier will receive a fixed order with the required
delivery date. There will be no visibility of stock
levels and actual sales plans. The advantage is that the
company maintains full control over stock and orders.
The main disadvantage is the the supplier receives no
information to help in prioritisation in case of
capacity issues. This usually leads to structured or
ad-hoc additional processes to manage these issues.
In the VMI concept the supplier is made responsible
for the product availability and delivery planning. The
data that is provided is usually the sales forecast and
inventory levels. This method requires a quick response
manufacturing capability and a relatively stable
forecast to work well.
Irrespective of which demand model the company uses
the management of suppliers is key to providing high
levels of product availability.
In most cases the suppliers will be factories
belonging to the same company or external contractors.
Regular contact and information exchange with the
suppliers is important in case of production issues or
extraordinary demands. In some cases there are standard
forums (meetings via person or telephone) set up to
improve relationships with suppliers. If there are none
then we should initiate and organise these.
Measurement of supplier performance is usually not
very structured. Everyone seems to 'know' who the
problem and model suppliers are, however facts and data
are usually only ad-hoc. Therefore it is recommended to
define and introduce a Supplier Evaluation Process.
Inbound Freight Management
The inbound freight management may either be
organised and paid for by the supplier (it is integrated
into the cost of goods) or have to be managed by the
logistics function. Even in the latter case company
policy or regional service provider selection may
dictate the vendor to use. If not then it is up to
logistics to select and operate the most cost-effective
and secure solution for both full truckload (FTL) and
less than truckload (LTL) shipments. In case of more
exotic sources or destinations non road shipment methods
are also used (typically air and sea). Service
providers should be measured through appropriate