“In years past companies have focused on demand side forecasting accuracies. SC managers are realizing the big gain is on supply side management.”
– Chris Barnes
An article I co-authored with George Stalk, Jr., “A Better Way to Match Supply and Demand in the retail supply chain” was recently published by Harvard Business Review. A colleague, who happens to go by the handle of “Supply Chain Doctor” made a profound comment on the underlying premise of the article. He said…
“The future of SCM is here. In years past companies have focused on demand side forecasting accuracies. SC managers are realizing the big gain is on supply side management. Whatever you can do to help your suppliers will pay dividends to your company. Not as glamourous as omni-channel distribution, but without strong supplier relations, omni-channel won't really matter much.”
Loyal readers will understand that we're talking about using the flowcasting process to only forecast where it counts (i.e., the final point of sale) and to calculate all other inventory flows from consumption to supply. This, of course, culminates in sharing planned shipments with suppliers – a concept referred to as supplier scheduling.
The concept of supplier scheduling has been standard practice in manufacturing for decades – that is, sharing a projection of future required product needs to help a manufacturer's suppliers plan and deliver. Flowcasting allows retailers and their manufacturing partners to leverage the same concept.
The planned shipments are the demand plan for the supplier for this retail customer – indicating how many units of each product will need to be shipped, when and where. This eliminates the need for the supplier to forecast demand for this customer.
From a supplier perspective, their major retail customers can provide them with calculated demand, rather than having to forecast it themselves. Most CPG manufacturers would only require a handful of supplier schedules from their large retail customers to provide 70+% of their total demand. They can forecast the balance.
The projected requirements have all retail, supply chain and inventory flow constraints/rules incorporated, specific to each retail customer. If a Retailer Customer was experiencing increased sales or had decided to change the shelf inventory requirements at a future date, the supplier schedule would reflect this in the planned shipment quantities.
The Flowcasting model is based on a fundamental principle – a valid simulation of reality. If the retailer and trading partners know the future will be different than the past, then these insights are factored into the forecast and resulting inventory flow plans, culminating in the supplier schedule.
The impact of retailers embracing Flowcasting and supplier scheduling is significant. It obsoletes a significant amount of non-value-added forecasting and, even more significant, effectively eliminates the bullwhip effect.
Perhaps we should listen to the Doctor's orders.