Four steps to improve your supply chain forecasting
For many manufacturers, a combination of the pandemic, ongoing supply chain issues, and tightening economic conditions have created serious financial challenges. The environment continues to be unpredictable due to global shortages of raw materials, rising energy costs, staffing and productivity issues, unreliable shipping, and environmental concerns. Companies with supply agreements that include efficiency clauses with price-down targets are experiencing additional pressure.The world is changing rapidly and manufacturers are recognizing the need to get ahead of it now. One area ripe for change is improving efficiencies with supply chain forecasting.
Supply chain forecasting uses data analytics and research to make predictions on all aspects of the supply chain to keep the business running smoothly. At its essence, it requires stitching together a variety of data points to help understand trends in the business and create actionable insights. There’s no single strategy for improving supply chain forecasting. Every company is different, and the method you choose will depend on its unique factors. The following four-step analysis will help you plan a framework for your forecast.
1. Evaluate your supply chain
Study your supply chain and identity top risks from top to bottom. Identify your suppliers, intermediaries, and the businesses you coordinate with to get products to your customer. Evaluate the sourcing process, the amounts each supply partner can provide, the price, your supply partner’s capabilities and capacities, and the business case for each. Collect and process market data to understand how prices and operational costs might change over time.
2. Review the sales and operations planning (S&OP) side of the business
Review the sales and operations planning side of the business with an eye to improving the inputs to your forecast. Is the sales team keeping the operations team informed about what the customers are asking for? Is demand shifting? What will the company be focusing on in terms of new business? Is the operations team in tune with the supply team? Is the purchasing department buying the right materials and identifying sources for new products that may be coming around?
Supply chain forecasting works hand in hand with demand forecasting, inventory optimization, and sales forecasting. It leverages advanced analytics to help determine when customers are likely to buy certain items. Implement spend analytics to provide a true look at where the money is going, what it’s being spent on, and focus in on key items. Predictive analytics alongside a review of historical data can provide the information you need to keep suitable stock levels to fulfill customer orders. With solid supply projections, you can better estimate total sales, revenue, and profit margins.
3. Understand your geography
The location of your suppliers affects how quickly items can move through the chain. Where possible, sourcing closer to your operations can have significant benefits. For example, moving sources from Asia or the European Union to North American suppliers can reduce transit time for inbound shipments, minimize the amount of capital tied up in raw materials, and reduce the complexity of the supply chain. It can also help alleviate geopolitical concerns as the global implications of regional conflicts are felt in an ever-connected world. In many instances, the cost of relocating to North America can be offset through efficiency gains elsewhere in your operations. The location of warehouses and fulfillment centers are also important. Look for opportunities to relocate or utilize them differently to minimize shipping times and increase the flexibility of your supply chain.
4. Establish your objectives and forecasting strategy
Once the analysis is complete, it’s time to roll up your sleeves and determine the best method for using resources efficiently, keeping the machines running, and reliably meeting customer demand. Take a macro snapshot approach — determine where you’re at with everything from budget and logistics to throughput and so on.
Look for opportunities to optimize your:
- Inventory levels: Excess inventory ties up resources that can be used elsewhere. With accurate forecasting, you can keep stock numbers as close to an ideal range as possible to maximize sales, revenue, and profit margins.
- Logistics network (both inbound and outbound): Create visualizations that show where stock is and when and how it’s being transported to identify inefficiencies that are driving up transit time and cost. These insights will help you establish better relationships with transportation service providers and prioritize key customers.
- Production scheduling process: Review scheduling processes to optimize runtime, reduce changeovers, develop risk planning, and plan optimal secondary options to scheduling changes.
- Labor force: Invest in automation within the production and material handling process and cross-train staff to reduce non-value-added steps such as changeover and excess material handling.
- Administrative functions: Maximize your administrative staff’s time by automating processes to increase throughput of supplier requisitions, purchase orders, and quotes.
- Strategic spare parts inventory: Develop a purchasing strategy to obtain and store critical spare parts for operations and an inventory management strategy to ensure expensive repair items can be sourced expeditiously when cost to purchase and store is too high.
Design the forecast for each link in the supply chain, including components, service parts, and finished merchandise.
Forecasting is an inherently tricky business and will never be 100% accurate. It involves making predictions based on past and present information, using hard data, and, at times, intuition, to varying degrees of accuracy. The forecasting method you choose will depend on the nature of your business and your economic situation. Whichever method you adopt, it’s important to review the forecast at regular intervals to ensure you’re inputting the most recent trend information for your calculations.
Business is constantly changing. New products and competitors appear, industries are disrupted, and suppliers come and go. But when developing a supply chain strategy with accurate information, the sky’s the limit; getting it right can lead to better supplier relationships, increased customer satisfaction, and more capital to grow and scale your business.
