If you flip a coin, you have a 50/50 chance of winning. As long as the coin is evenly weighted and the coin flipper isn’t playing a trick on you, it’s going to come up heads or tails a roughly even number of times. There may be situations where it comes up one or the other more frequently, but those are outliers that even out the more times you flip the coin.
Let’s pretend that you have millions of dollars riding on the next flip. Would you continue to make that bet?
Every day, planners in our modern supply chains execute replenishment orders based on forecasts. Even best-in-class companies achieve only 70-75% forecast accuracy at the SKU level within the replenishment lead time. Most companies have much lower forecast accuracy. These planners are basically flipping the coin, knowing that their forecasts are just as likely to be wrong as they are to be right.
The question is, do we have a choice? It’s not like planners and their organizations haven’t tried all sorts of approaches to improve forecasting, from more frequent S&OP meetings, to more sophisticated systems, to adjusting forecasts manually to reflect the situation on the ground. Nothing seems to help. At least not for long.
We need to understand that though they are inaccurate, forecasts are not bad. We absolutely need forecasts to prepare our operating model to respond to actual demand. But, because actual demand will differ from forecasts, we also need to:
- Build agility into our industrial system, especially through decoupling mechanisms, capacity and time buffers
- Give clear signals to our planners to enable them to make the best decisions daily
- Use technologies that support our efforts instead of increasing complexity
The DDMRP methodology and Demand Driven Technologies’ solutions enable us to do this. Color-coded decoupling buffers provide clear, market-driven signals that help buyers and planners see what they need to order.
“Business is much easier with Replenishment+. Now I can focus on solving potential availability problems in advance. I used to drown in an ocean of fake alerts and, still, my phone did not stop ringing because the right material was not ready for manufacturing.”