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Why should forecasts hold true?
Most consumer companies start their Sales and Operations Planning process with demand forecast. It is this view of the demand outlook that decides various supply actions… how much should we produce, how much should we procure, how much inventory should we keep? So far, so good.
Supply Chain teams then expect the forecast to hold true. Is it reasonable? The assumption behind forecasts coming true is that consumer demand is completely predictable! How else could we forecast it so accurately?
We must challenge this assumption and expect actual demand to be quite different from the forecast. Nothing wrong with the forecasting process, we are just acknowledging market reality.
Once we challenge this fundamental assumption, we’ll find out how to reduce our dependence on monthly forecast. Various concepts of agility start making sense.
Teams which find it difficult to challenge this assumption continue to struggle with issues of stockouts and surplus inventory and end up firefighting.
The choice is yours…