Last month we introduced the “Record, Report and Evaluate” procedure for obtaining for predictions of how sales or material consumption will change in the future. This month we will continue to explore how we can obtain the most accurate estimates of future demand from customers:
• Ask your good customers for product usage forecasts. Not every customer can provide this type of information. But customers that plan future projects or develop production schedules for their products are good candidates. Offer these customers an incentive if their estimates are close to what they actually purchase. For example, offer an incentive if their actual purchases are within 20% or 25% of their collaborative forecast. After all, if they provide you with an accurate prediction you can stock less material (perhaps even utilizing a “just in time” stocking philosophy) and still have material available when it is needed. It is a good idea to gather and measure the accuracy of customer predictions for several months before including them in your demand forecasts.
• You may sell products for which you receive collaborative forecasts to other customers as well. In these instances, make sure that shipments to those customers providing collaborative forecasts are not included in your normal usage history, that is, the data that is used by your system in a formula to calculate forecasts of future demand. If you add usage that is included in collaborative forecasts to usage history, you will be “double counting” these sales in determining how much to buy from the vendor. Your total demand forecast for an item should be the sum of collaborative forecasts and added to the forecast calculated with a formula based on past usage history.
• If you can determine, in advance, what you will purchasing from your vendors in future months, work with them to develop a collaborative forecasting program in which you provide them with accurate estimates of your future needs in exchange for better terms or discounts. At the very least, providing your vendors with collaborative estimates of your future purchases should improve the consistency of their deliveries.
Collaborative forecasting works to solve two of the greatest challenges faced by buyers and inventory managers:
• Stock outs of critical products
• Unneeded safety stock sitting on the shelf gathering dust
Of course, there are many instances in which customers cannot predict their future product needs. However, whenever they can accurately estimate future usage, collaborative forecasting promises to increase productivity and profitability throughout the supply chain.
Next month – Evaluating collaborative information from your salespeople and management.