October 15, 2019
October 15, 2019
Contributor: Sarah Hippold
To leverage the benefits of improved demand forecasts, supply chain leaders must invest in end-to-end supply chain capabilities.
Change is the new constant in supply chain. Frequent new product launches and growing item counts as well as new markets and business models keep supply chain planners on their feet — and forecast accuracy is at the top of their priority list.
To achieve better forecast accuracy is one thing. To know what to do with the improved forecast is another story.
“Supply chain leaders are often frustrated when they see that forecast accuracy has improved, but has had no effect on overall results,” says Steve Steutermann, Managing Vice President, Gartner. “To achieve the desired outcome, improving the forecast is only the first step on the path to creating an end-to-end (E2E) supply chain capability."
Forecasts are only as good as their inputs. A good demand plan requires demand visibility — insight into what the customer will order, when they will order and where they will require it in their network. You also need demand visibility to enable your supply chain functions like your vendor-managed inventory solution or transportation management system. The ability to see customer consumption and inventory data is key to improving customer service and managing costs across the value chain.
Demand visibility is important, but it needs to be delivered in the right frequency for supply chains to achieve E2E capability. At the heart of demand frequency is the ability to use a demand-sensing solution. If a company can’t produce a demand signal in the needed frequency, it can’t react to demand variation.
“Companies that implement sensing demand using consumption-based forecasting solutions have proven the most successful at improving forecast accuracy, improving service and reducing inventory levels. Without demand frequency, companies can’t react in time to balance inventory and service requirements,” says Steutermann.
A daily demand forecast that is improved due to greater frequency is a good start, but is still not the whole formula for successful E2E supply chain performance. Another piece of the puzzle is supply reliability — the art of enabling predictable output. Inbound management plays a key part for this area.
In an ideal world, incoming materials consistently and predictably arrive on time and in the required quantity and quality. The world is not ideal, but to improve reliability, supply chain leaders should aim to align customer requirements with sourcing strategies and support suppliers with supplier relationship management tools.
Read more: How to Set Up S&OE in Supply Chain Planning
In today’s fast-paced business environment, demand and supply are ever-changing variables. To respond to demand changes, you need agile supply chain capabilities. Gartner has found that organizations that have previously started supply chain agility or responsiveness initiatives are in the best position to leverage daily generated demand forecasts. Those organizations have usually already implemented shorter production cycles, more frequent production scheduling and improved factory changeover speed are better prepared to benefit from an improved forecast
To achieve full E2E supply chain capabilities, it is crucial to invest in the right technology portfolio. While there is no single way to achieve E2E performance, many companies start their journey first by improving their demand management capabilities and then focusing on their supply response, before making additional investments to improve customer service capabilities.
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Recommended resources for Gartner clients*:
Achieving E2E Supply Chain Capability Is Much More Than a Good Demand Signal by Steve Steutermann.
*Note that some documents may not be available to all Gartner clients.