The Worst Advice We’ve Ever Heard About Demand Planning

It is no secret that demand planning is a process that many businesses go through to remain successful. It allows for the creation of forecasts that will help the business manage their inventory levels. This is beneficial because the business can then use this information to align their inventory levels along with the fluctuation of demand that is placed on a particular product.

Because it is so important, there are multiple strategies that businesses can rely on when it comes to demand planning. As with all other types of strategies, some are better than others. There are also those strategies out there that wind up working against the company instead of for them. When you are choosing your strategy, be sure to avoid these instances of bad advice.

You should use one Strategy for all your Products

There are actually several factors that go into deciding the best strategy to use for any given product. Business leaders should examine things like geographical location as well as the industry in general. While this information may be consistent between some products a company offers, there are also times when each product should be treated individually.

Trying to place all your products into a one size fits all kind of model is dangerous and will not provide the right type of information that is truly valuable. Instead, you should always look at your products individually in order to determine what the true demand for the product will be in the near future.

You should think of Demand Planning as if it were a Program

This is a trap that many businesses fall into. Oftentimes, we tend to look towards the future and wish that we could speed to success instead of going through the process. This is the same issue in some companies that are looking to implement demand planning. They are focused on getting it up and running quickly.

Instead of taking this approach, it is always best to focus on creating a demand planning project that is ran well. While we all want to begin being successful quickly, demand planning is something that should take some time to implement. It is not a program that has certain steps that you must follow in order to be completed. Take the necessary time to carefully analyze the information that you are receiving so that you can gain the best amount of quality data. This will allow you to make the best decisions in regard to your inventory.

If you Plan correctly, you won’t have Surprises

Planning is an important part of the entire process. But, no matter how well you do plan, there will always be something that occurs unexpectedly. To help balance this, you should always have a backup or contingency plan. The most important thing to remember is that there will be surprises and that you must plan for every scenario possible.

In order to plan for surprises, always make sure that you are in a position that makes you flexible. For example, you may find that you need to have a plan to find alternate materials than what you normally use to create your products. Having this plan in place and being able to execute it quickly can help you to manage the times when supplies are out of stock or limited from your traditional supplier.

Don’t Put your Faith in Statistics

Statistics aren’t really all that exciting. However, they definitely have their place in the business industry. In fact, most businesses out there aren’t really using statistics to the best of their ability. Instead, they simply glance at the numbers and carrying on with their daily lives.

Statistics are very powerful. Businesses who have the ability to drive the company towards improvement are those that are the most profitable and successful. Also, when you rely on statistics to make changes to your demand planning strategy, you will find that it is extremely easy to measure the value that is added from your changes. So, along with your forecast information, be sure to review statistics that are related to your industry and your products when making changes to your strategy.

Your Plan should be complicated in order to provide the most Value

Some mistakenly believe that in order for something to work the best way that it must be complicated. This couldn’t be further from the truth. In fact, demand planning will work much more efficiently if you are able to keep your processes and strategies simple.

The most important thing with any demand planning process is that the strategy that you choose is geared towards your specific company. Take a look at the amount of support that you will need as well as the amount of information that is already available. You can then choose a strategy that will help work with your company in the best capacity.

Focus on only one Product at a Time

It is true that you should look at each product individually. However, it is also true that you should focus on all your products rather than just one or a handful of your most popular items. You never really know what you are missing with other products when you choose to rely on this method. When a company only focuses on certain products, they may find that their success is not as great as they had expected.

Instead, you should take more of a 360 approach when it comes to demand planning. Look at the various elements of your entire business and look for changes that you can make to improve each of them. Some companies have found that by making some simple changes with some of their lesser performing products that they were able to greatly improve the success of the entire company.

Final Thoughts

Demand planning is critical for companies that are looking to create historical sales information. With this type of information, forecasts can be created that reflect the company’s customers as well as statistical information about the company as a whole. This information can then be used to collaborate with the customers in order to create products that will appeal to them and that will be available when demand is high.

There are plenty of things that a business can do incorrectly when it comes to demand planning. For this reason, it is always best to rely on a specialist to help with the goals that your company has in place. Choosing a partner for this venture is something that you should consider if you are looking to truly gain control over your inventory and the demand for that inventory.

When choosing a company to help you with this mission, be sure to choose one that has experience within your industry. You should also look for a company that takes the time to learn about your company and what is most important to you. This type of company will be the best option when it comes to receiving the value that you deserve to receive.

To learn more about MaxQ and what we have to offer to our customers, be sure to contact us. With our solutions, you will find that your business is able to receive all the information that it needs to rise to the top.

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The Latest Supply Chain Planning Trends: A Round-Up of Recent Industry Changes

Supply Chain Planning

 

Depending on who you ask, the global economy has hit a bottom, and it’s on the way up or it has already peaked and it’s on the way down. No matter which view you have of the macro-picture, one thing is certain in the finer details of supply chain planning: although there’s a striking mix of the very good and the very bad, depending on the industry, everyone is being forced to adapt. As the actions of these adapting companies become clearer, noticeable trends are beginning to develop.

A Trend Toward Urban: Fulfillment Centers Moving to the City

Real estate developers in the logistics arena have seen some good times lately. Demand and imports in the US continue to grow, and e-commerce continues to fuel activity.

What’s interesting, however — and what has been exciting for them — is the growth in urban sectors. While the huge fulfillment centers in the remote locations far from cities are still critical, retailers and distributors are supporting the rural locations with smaller fulfillment centers in urban areas. Research reveals growing demand for locations under 200,000 square feet in dense urban areas.

Amazon has been a textbook example of this new trend. As this September 2015 article from Supply Chain Digest explains: “Amazon and others often find space in old industrial and warehouse areas within a city, and generally need few of the amenities companies look for today in traditional DCs, such as high ceilings and modern layouts. Location is the chief attribute these distributors are seeking to support so-called ‘last mile’ delivery.”

In the case of Amazon, they began this small service center experiment in London in 2013. It worked exceedingly well, and they launched the same strategy in the United States soon after. As noted in the Supply Chain Digest article above, Amazon already has 19 such urban centers as of June 2015 with more on the way.

Crisis in the Publishing Industry and How Publishers Are Switching from In-House to Third-Party Logistics Providers

Publishing has been wading through a crisis ever since the e-book hit the markets and redefined what “book” means. Now that years have passed since the late 2000s when the sea-change began to take form and noticeably affect publishers, what this crisis means for the supply chain has taken a more observable form. The new publishing paradigm has emerged. Publishers have realized that the usual fixed pricing model and the familiar system of publisher owned and operated warehouses is no longer ideal. The use of variable pricing models and, as bound paper inventories diminish, the switch to third-party logistics providers are rewriting the supply chain story.

McGraw-Hill Education is a recent example of this new dynamic as a recent August 2015 white paper from Supply Chain Management Review observed. The publisher worked with a third-party provider (GENCO) to accomplish four major goals:

  1. Mitigate risk
  2. Transfer assets
  3. Establish a variable pricing model
  4. Build a flexible platform

 

  1. Risk

McGraw-Hill’s risk was two-fold: a large supply chain workforce and excess warehouse space for an ever-shrinking inventory.

What was heartening for the employees, however, was that they didn’t lose their jobs. Their positions were transferred to the third-party logistics provider — same job; different boss. The transferred employees were then placed in a consolidated warehouse system that used Lean principles to obtain the highest efficiency.

  1. Assets

McGraw-Hill’s long-term leases were near their end dates. The third-party provider transferred the real estate assets, took over the leases, and made more efficient decisions with the excess space.

  1. Variable Price Model

McGraw-Hill, through the third-party provider GENCO, needed to change to a variable pricing model that could bring in new streams of revenue. GENCO’s solution was surprisingly simple: re-purpose the excess warehouse space by leasing it out to tenants, even if those tenants were competing publishers. Instead of unavoidable losses, the unused space became strengths that helped stabilize McGraw-Hill.

  1. Flexible Platform

The third-party provider had a large network of distribution centers that McGraw-Hill could use. This flexibility and access to large amount of resources without taking the risk was exactly what McGraw-Hill needed.

To summarize all of it in one sentence: today’s publishers must trim the excess weight of fixed, in-house systems and transform themselves into lean, agile operations that can turn on a dime as the industry continues to change rapidly.

How China’s Decline Will Hurt Asian Parts Suppliers

Asian electronic-parts suppliers are nervous, to say the least. And there are three reasons for that: China’s devastating downturn, the evolving smartphone industry, and the frighteningly volatile market.

In a recent September 2015 article from The Wall Street Journal — as quoted by Supply & Demand-Chain Executive — a severe slowdown in China’s smartphone market is sending ripples through the supply chain: “World-wide sales of smartphones grew at their slowest rate since 2013, research firm Gartner said this month, with sales in China falling for the first time in the second quarter.”

Samsung Electronics Co. and SK Hynix Inc. will certainly feel the burn. Many smartphone devices use the memory chips of these companies to store data. And other companies higher up in the supply chain, like Fanuc Corp. and Tokyo Electron Ltd., have already lowered their sales forecasts for the fiscal year that ends next March.

Aerospace and Defense Supply Chains Still Trying to Figure Out Wearables, Analytics, and the Internet of Things

As Supply Chain Quarterly noted recently in a September 2015 article, digital technology is still in its infancy in supply chain planning. It’s ironic, really. As covered in the fascinating new report from Accenture — “Are You Playing Ramp Up Roulette With Your Suppliers?” — industries with incredibly advanced technology (aerospace and defense) are still rookies in their use of digital technology in supply chain planning.

Upon first look, the numbers in the report seem promising, especially in the use of analytics:

Three-fourths of respondents [in aerospace and defense] say they have either implemented or plan to implement analytics for supply chain execution…The use of mobility tools, such as tablets, wearables, and other personal devices, is also increasing, with half of respondents planning to use or already using them for supply chain execution. Cloud-based technology, currently used or planned by 34 percent of respondents, also shows great potential for the aerospace and defense industry.

But the report makes this conclusion: the aerospace and defense industries are “still challenged by a lack of transparency and weak collaboration.” There is still great potential for improvement, and Supply Chain Quarterly suggested a few great ideas to start: “analytics and simulation of products could be used during development and testing, and wearables could help companies conduct virtual production inspections.”

Meanwhile, other industries are already finding powerful ways to use digital technology. Take the Internet of Things, for example; as InboundLogistics.com writer Udaya Shankar explains, companies are using RFID chips in pallets that are linked to a device integrated in the shipment vehicle to provide crystal clear in-transit visibility. This sends vital information to the company — GPS coordinates, weather conditions, traffic conditions, departure and arrival times, the driving behavior and speed of the driver — that adds many new capabilities to supply chain planning.

As Shankar observes: “Combining real-time sensor data with environmental data can provide intelligence of higher order to all the stakeholders in the ecosystem.”

Contact us for more helpful insights about the current trends and future of Supply Chain Planning.

 


Statistical Forecast for Better Demand Planning

Using a statistical forecast as a starting point often proves to be a solid start to a collaborative Demand Planning process. First, why do companies forecast? There are several benefits of more accurate forecasts;

 

  • Improve customer service levels.
  • Increased sales.
  • Reduced cost of carrying inventory.
  • Improved cash flow projections.
  • Production smoothing (level loading).
  • Reduced employee costs.
  • Increased return on investment.

In basic terms, all manufacturing/distribution companies want to do the same thing. They wish to have the right stuff in the right place, at the right time. So then is it better to use a statistical forecast or one made by a person? Well, a statistician would call this a choice between statistical and empirical estimate. The statistical forecast gets generated by software that calculates that forecast strictly by applying statitical techniques to the sales/booking history while an individual or a group of people uses judgment to formulate a collaborative forecast.

So then, how does the statistical forecast fit in a collaborative process? Some experts recommend using a statistical estimate as a starting point rather than asking someone such as sales person, to create a forecast from scratch. This statistical forecast, should not be the final answer; rather it is the starting point of that collaborative forecasting process. It’s a great input to start cross-functional demand planning.

Another question that people ask is; are there other cases where we should not use a statistical forecast? And the answer there is yes.  Any product that its history is not indicative of the future cannot use statistics effectively. Items that can be considered fads are particularly hard to predict. Many companies that have forecast increasing sales based on past sales trends for items that were a fads. They get stuck with inventory that can possible bankrupt a company. Remember the Atkins diet craze from a few years ago, Atkins Nutritionals went bankrupt after being to force to throw away millions of dollars of inventory.

New products, for example, pose a challenge for statistical forecast in that there’s no history, in this case, we suggest using a similar or like product, to model the projections for that new product.

Short life cycle products can also be a challenge because there’s a little history, and little history does not yield strong statistical forecasts. In other cases, volatility of historical demand can result in unstable or unusual trends that do not have any statistical correlation. And finally significant changes in demand patterns caused by acquisitions or other either company or external events can drive unreliable forecasts.

In summary, a statistical forecast can be an excellent tool but should not be the only method used to create an accurate forecast. Need more information and help? Then contact us and we will give you the best advice.


7 Great Benefits of Vendor Managed Inventory

 

Vendor Managed Inventory

Vendor Managed Inventory, or VMI, is a business relationship where a manufacturer or distribution business takes over management of inventory for a retail or wholesaler. Using Electronic Data Interchange (EDI) or other electronic methods for communication, the vendor of the product will manage orders and fulfillment for those further down the distribution chain.

VMI: Managed vs Consignment

There is significant difference between managed and consignment sales types of VMI, and some similarities/differences which merit further discussion before we look at the benefits of VMI management. Consignment is where the vendor retains ownership of the product until the time when it is sold to the end user. When the inventory is sold, the retailer takes a commission of the price and sends the rest of the money back to the vendor, as payment.

VMI can be used with consignment products, but does not have to be. VMI can as be used as “Managed”. In this case, the goods are sold to the retailer at the time of shipment, but the vendor manages the inventory levels at the customer’s sales location. The Vendor does not wait to receive a purchase order to restock; the vendor handles replenishing the inventory to maintain optimal sales. In some VMI relationships, it means the vendor creates and maintains the displays at the sales location and stocks them to make certain they are full.

VMI is dependent upon having the right software and the right relationships with customers. Since communication between customers and vendors is essential to a successful VMI system, the right software will need to facilitate communication via the cloud to increase access and communication.

 

Increased Customer Service

Perhaps the most important aspect of VMI is the improved channel communication. Manufacturers, distributors and retailers/wholesalers have to build communication systems utilizing advanced software.This provides both you as the vendor and your customers with information necessary to operate a VMI system. Additional results from increased communication and cooperation are better customer service, improved quality, reduction of costs and increased sales.You improve your customer service by accurately and swiftly responding to your customers’ needs.

Better Planning

To establish a proper VMI relationship, you must have access to a significant amount of data from your customers, including POS and inventory adjustments. This data provides you the information necessary to create an optimal inventory management plan. Additional uses for this information include order management, income planning, parts and supplies planning, HR and more.

Rather than guessing how much product a customer will need based on intuition or limited information, VMI gives both parties the right information needed to optimize the supply chain.

Strategic Business Alliances 

VMI benefits business relationships between more than just you and your customers. Distributors often take part in a VMI relationship, increasing the accuracy and efficiency of your inventory management while decreasing the costs. Often a distributor will receive the same sales data the vendor does and then optimize the inventory at the customer site to reduce costs to the vendor and to decrease turn-around time when the customer needs new inventory.

Additionally, the same system of communication built with your customers can be used to build relationships with your suppliers to increase your use of JIT inventory in your manufacturing processes. While any business relationship needs to be entered into with caution, the systems that businesses need for VMI facilitate much stronger business alliances across the entire supply and distribution chain.

JIT Inventory

JIT stands for Just-In-Time. JIT, focuses on only ever having enough inventory on hand to meet current needs. The amount of inventory needed depends on your product type, how fast it will move off the shelves to consumers and how long it will take to produce more. Because of the complicated management systems required, JIT inventory management has only recently become affordable options for businesses because of the advances in the cloud, IT speed and storage and business systems.

Your customers want to utilize JIT inventory to get the most out of their physical space and reduce costs to their business. With VMI, you establish JIT inventory levels for your customers and produce according to that need. You see their sales and inventory levels and now have a better insight into their need.  This has tremendous advantages for manufacturers and warehouses as well as for their customers. Leading to much better forecasting for the vendor, inventory levels can be really optimized for both parties.

Variation from Franchising

For many businesses, the advantage of franchising is maintaining control of parts and inventory down the distribution chain. Napa Auto Parts has consistent pricing, inventory and displays for all their manufactured goods, no matter the location. This is just one of the major advantages of franchising. With the increased communication with your customers through VMI, you have the opportunity to build quality control into your relationships with your customers. This means that you can have a hand in marketing your inventory to the end users of your product, not just the other businesses in your distribution chain.

Advanced Forecasting

Accurate forecasting requires data. The more data you have about sales results, the more information you can infer about customers, about seasonal trends, about the demand curve and your product life cycle. With historical data and an understanding of the causes of trends through common sense and experimentation. A spike in car parts from May-September could be caused by summer travels, for example. With the large amounts of data gained by using a vendor managed inventory system, you can improve accurate forecasts of the most likely scenario for increases and drops in demands. This aids long-term strategic planning and short-term order fulfillment.

Reduction of Sales Costs

Storage adds significantly to the costs of your product.  You incur costs to store inventory waiting for an order, your customer also incurs costs storing inventory waiting for a sale, you have collectively added significant costs to each item sold. Whether this cost is visible or not, it is there.

These 7 benefits show that with the right IT and communication, Vendor Managed Inventory is an excellent way to increase your customer service offerings, whether you are a manufacturer or a distribution company. Integrate VMI to build relationships, improve quality of product delivery, increase income and decrease costs.

We offer complete warehouse management solutions that integrate well with any VMI system you may put in place. Contact us today to see if our WMS will work for your business’s needs or for more information about business systems to improve your bottom line.