I recently published an article about how Flowcasting was built on bedrock, rather than buzzwords. My argument is that the concept of Flowcasting is architected on a series of what I believe are timeless, fundamental supply chain planning principles. You know, like “never forecast what you can calculate”, and so on.
A reader sent me a note about the article, outlining two major objections to my thinking. Here’s what they said…
“Hello Mike, I have two major objections to this article:
First one is that “The entire retail supply chain (or any industrial supply chain) is driven only by a forecast of end consumption” is highly flawed. It does not consider lead time variability, and overall, any other kind of variability
Second one is the narrowed view of having one “valid future”. This assumes you are planning against a fixed demand scenario (most likely the average) while one cannot act as future demand is strictly known”
I was tempted to reply something like this… “Hello, thanks for the comments. Feel free to clear off with your negativity and lack of understanding.”
However, upon reflection, that seemed a tad harsh and didn’t address their queries. So, I decided a more proper response would be more appropriate.
Here it is, essentially…
“Hello. Objections are always welcomed, and thanks for your comments. What I was trying to do in the article was to outline the fundamental principles of Flowcasting and explain why I believe they have and will, endure.
In terms of your question regarding an industrial supply chain being driven by end consumption, I was referring to the disconnectedness in the retail supply chain. For example, it’s very common for a retailer to have one system/approach for stores, one for their DCs and no sharing of future projections to suppliers. Flowcasting connects it all in one integrated approach, using the principles of time-phased planning and Distribution Resource Planning (DRP) – the integrated supply chain is connected by dependent demand from consumption to supply. And, since the upstream nodes are dependent on their customer nodes, the entire supply chain can be connected by developing and maintaining an up to date forecast of end consumption. In retail, that’s a forecast of consumer demand, with all known demand influencers (e.g., promotions, etc.) factored into the forecast and the only forecast needed in the retail supply chain.
In response to your comments around variability, you are right – there is lots of variability in the retail supply chain, or any industrial supply chain. However, this is managed by supply chain constraints and stocking policies, which can be time-phased. Of course, forecasts will always be wrong and that’s one reason we plan using safety stock, or planograms at store level that aim to dampen the impacts of this variability, while keeping inventory available for consumers to purchase. For seasonal products, the variability in the weather (e.g., when will spring happen in the prairies in Canada) can be mitigated by planning inventory flows earlier than the season usually starts, just to ensure inventory is positioned for sale should the season break early.
In response to your question regarding lead time variability, a lot of it can be dramatically reduced by daily replanning and sharing those updated plans up and down the supply chain. From experience, if the retailer does a decent job of sharing stable supplier schedules (essentially projected purchases by product) with their merchandise suppliers, this helps suppliers deliver on time and to a consistent lead time. That’s also true for internal operations teams – since the Flowcasting projections are converted to their language of the business (e.g., cube, volume, capacity) then these teams can pick, pack and deliver to a consistent lead time. This is not theory; it’s happening today.
In terms of a valid view of the future, for operational purposes, Flowcasting uses a forecast of the “most likely” consumer demand. While probabilistic planning has many proponents (and I agree, I do see where it could be very helpful) at some stage, the supply chain is governed by actuals. For example, consumers don’t buy probabilities in stores – they buy products in specific quantities. Therefore, stock transfers/purchase orders flowing from the integrated Flowcasting plans have fixed quantities and the process calculates those quantities using the “most likely” estimate, built on top of policies that cover variability.
In summary, several retailers use what I would call the Flowcasting concept and have increased daily in-stock from the 92-94% range (the industry average) to 97-98% while also improving enterprise inventory performance and costs.”
So, to the respondent to my article, Thank You for the objections. They help me/us to better understand where people’s thinking is and give us the chance to respond – to hopefully either enlighten the reader or challenge us to improve the Flowcasting concept.
A win-win either way.