Do You Know Your Execution Level for Your Demand Forecasting?

I think this blog falls under the category – someone is always thinking, it just might not always be you.

You have hopefully read on this blog or perhaps in other venues the idea that demand forecasting has its greatest supply chain impact (and therefore financial impact) when improved at the execution level –the level that helps maximize the operational and financial performance.

And typically the implication and in some cases the outright declaration is that the lower the level of detail the better – supply chains do not produce product families or product categories.  They make actual products, SKUs, and items.  Forecasting at the family or category level only results in more error at the product level.  So it makes sense to ensure that the SKU level forecasting is where you measurably improve forecasting accuracy.

But … if SKU is good, SKU by location is better. And if SKU by location is better, SKU by Ship-to customer location by location is even better.  This could go on for awhile but the point is, the overall push has been for more information and accuracy at lower and lower levels of detail.

However, we recently ran into a company where that was not the case.  It is a consumer products company that operates at a very high level of RPMs.  And for their product and for their supply chain, forecasting at the SKU or lower level really does not make sense.  What makes the most sense for them is forecasting by product category or what they would refer to as chassis.  If they can get demand for the chassis accurately forecasted (said chassis representing 90% to 95% of the total material cost), then turning a chassis into a finished SKU is a quick and efficient process. The actual plates and other finishing components are inexpensive, easy and cost effective to order in bulk, quick to assemble, and are interchangeable with most of the chassis.

What’s the point?  It comes down to the fact that when you start the process of improving your forecast (for all the reasons that have been outlined many times), a real fundamental key to success is stepping back and thinking through what is your company’s execution level of operation?  Thinking through the execution level appropriate for you includes not just your supply chain but your entire value chain, especially as data proliferates through increased collaboration among enterprises.  Getting the answer right is critical to driving improved customer service, cash flow, and profitability.

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