Demand Forecasting - An enabler to improve the bottom line of an organization

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Demand Forecasting – An enabler to improve the
bottom line of an organization
By
Zubin Poonawalla
The biggest nightmarefor a CEO is a stockout situation.No one
wantsto lose sales becauseof stock outs. The practiceof holding
higher inventory createswhat iscalled theBull Whip Effect.This
raises inventory costs& reduces profitability.A crucial ingredient
for better inventory management is “Demand Forecasting”.
A well-managed supply chain is crucial in today’scompetitive
environment. Thenumber onegoal for any supply chain is to deliver
the good’s meeting the 5R’s (Right Product, Right Time, Right Place,
Right Price & Right Quantity). There is a risk involved atevery stage
& nobody wantsto fail, resulting in a stock out situation. All this
dependson the level of the accuracy of the forecast being received
from the commercial team which is a challenge for them. Poor
forecast will lead to stock outsituation while an optimistic forecast
will lead to excess inventory. Theforecast accuracy is essential to
have a dynamicflow of information acrossthe chain. This is the
reason for which emphasis is given on the S&OP process & it should
be the heart of the businessoperation. The foundation of an effective
S&OP process is the trust amongstall stakeholders & jointly arriving
at an action plan. Companiesarebecoming quick, flexible by using
their visibility within the supply chain as a competitiveadvantage.
Reducingcosts by drivingdown excessiveinventory on hand has
become a critical priority for companiesin presenteconomy. Hence
improvingsupply chain visibility has become a key strategy in
managingthe supply chain.
The whole valuechain has to contribute to make an organization
profitable. The stakeholders across the valuechain keepson holding
inventory right from the manufacturer, vendors, distributor,
wholesaler, dealers, retailers, etc. There is no link with the customer
as to what he actually wants. The frontend of the supply chain has to
be in touch with the customerswhile the back end with the

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manufacturer /vendor. This willensurethat the supply chain
deliverswhat the customer wants.
I feel in the presentscenario if onecan eliminate the wastages in the
supply chain, that itself can lead to improvingthe bottom line of an
organization. The wastages are mainly contributed dueto inaccurate
forecast accuracy & monthend skewness. Following are some
pointersby which onecan eliminate / minimizethese wastages:
(A). Improve forecast accuracy – The stakeholders like the
distributors, dealers, retailers should happen bottom up, the data
pontshould be from the point of consumption. Thelogic is simple
that one supplieswhat onesells. By this process we actually deliver
what is selling the most as a result seasonality, economic condition
all gets covered. By this the availability is good & the stocks are also
under control.
-The quality of inventory willimprove.
-The inventory turnswillincrease.
-The ROI deployed improves.
-There is reduction in non/slow movinginventory.
-The raw material planningcan be doneefficiently with availability of
material having the most lead time available appropriately.
-The company can go to the extent of implementing vendor managed
inventory also if we have proper visibility.
-No opportunity lossdueto non-availability of material.
-Faster service to the customer leading to customer delight.
(B). Month end skewness – A typical Indian mindsetthat we wake
up in the final call. Companiesare workingacross sector on this
challenge, how to reducemonthend skewness. I think in this case
also the stake holdersshould be involved. Weneed to build trust
with the stake holders. We need to assurethem that we will supply
them what they need & not dump them up with material which are
unsold for them just to meet the companiessales target. This will
help them in reducingthe workingcapital. They will get moreturns
& increase their profitability, which in turn affects the companies
bottom line.
-The concept of weekly order cycle can be introduced.
-The w/h space can be utilized efficiently as the w/h will only be a
cross dockinghub as per ordersreceived from customers. The
material is notlying for long in w/h, hence onecan manage with
lesser space.

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-Primary transportation can be managed usingbigger container as it
can be unloaded in the w/h leadingto reduction in per piece cost.
-There is no detention of vehicles which normally happensdueto
month end skewnessas only inflow of material is there till the last
week & outflow happensonly in the last few daysof the month.
-The secondary transportation cost can be reduced by increasing the
order size of the customer & for upcountry dispatchesrouteplanning
can be worked upon.
With seamless access & visibility into the supply chain, the
organization can reducecost & improveon the workingcapital &
inventory. Organization can unlock new levels of efficiency, service,
customer satisfaction & profitability across the supply chain &
organization.