As we get ready to start what is sure to be an outstanding 2012, one of the keys to sustained success will be getting back to and focusing on the basics.  One of the basics is clarity and use of language to highlight what is really important.  For example, there are a lot of words and phrases about demand driving supply chains …

Demand Driven? Demand Driven Value Net? Customer Driven Value Network?

The jargon is constantly changing with new theories and practices unveiled yearly at conferences throughout the country. We understand that these organizations and bodies of expertise are profit reliant and must continually refresh and repackage their message to remain relevant.

But what are they really talking about?

Matching supply and demand – in a way where you and your customers and your vendors mutually benefit (improving the value chain). While easy to say, it’s not necessarily easy to execute with accuracy and discipline, thus the over-complication of supply chain terminology.

Listen to the conversations you’re having with your colleagues. Are you discussing the true business problem? Or skirting the issue by giving each other the run around trying to impress with multi-syllabic words and semantics? If it’s the latter, try looking at what’s at the root of these lengthy discussions.

Forecast error is a constant theme through these long winded phrases. Forecast more accurately and you’ll have an easier time with the rest of your supply chain process. Whether you’re referring to Gartner research circa 1999 or 2009, you’ll be told to improve forecast accuracy for measurably better supply chain performance.

Not only will 25% less error simplify your conversations, it’s also the shortest route to the shortest word your company cares about. Profit.

So for the record, we are forecasting a great 2012.  Happy New Year!

Of the many lessons that recent global unrest has to teach us, few have consequences as profound for American business as the fragility of the global supply chain. Indeed, the last decade has seen the emergence of a remarkable web of vendors and customers stretching to every corner of the earth. It’s an impressive infrastructure, borne of the stunning advances of the digital age, but its diversity comes with a cost made all too plain by catastrophe: when one supplier falls through, an entire production line can collapse like dominoes. After the recent events in Japan, for instance, an industry giant like Toyota is still operating at half capacity, not because its factories were affected by the quake, but because those factories depended too heavily on parts manufacturers deep in affected territories.

We ignore this lesson at our peril, as the companies that comprise the heart of our economy are part of this same web, ever subject to the whims of fortune. A setback like this can require months, even years, to fully recover, and in today’s market, there’s simply not time. While GM and Ford have seen their market share grow unexpectedly because of Toyota’s troubles, that increase isn’t a given. No external factor offers more potential pitfalls than rapidly changing market conditions, and increasingly, these hinge on external events like political unrest, weather cycles, or catastrophes. And no solution addresses these changes more effectively than building versatile, dynamic supply chains.

Sounds simple enough, right? Still, creating a system that can respond to both the Consumer Price Index and the Richter scale means rethinking our assumptions about planning. A raft of research from AMR and Stanford Business School suggests that accurate forecasting is the most effective way to improve supply chain performance, and by extension, increase profitability. And this requires that companies have a greater ability to collect, understand and use the enormous amount of available data in decision making. And let’s not forget the role of government policy, and its impact on market conditions in areas such as interest rates, currency strength and inflation/stagflation. Companies must take into account everything from consumer preferences to the political and environmental stability of supplier countries, and have fallback plans that are plug-and-play.

Apple, for example, reacted to unexpected demand for its iPad 2 with admirable ease, even when circumstances threatened to worsen the usual rollout shortages. The tablet went on sale the day of the Japan quake, and its far-flung supply chain calls on parts makers including Japanese Toshiba, whose NAND chip production was affected by the tsunami. Apple, however, was unflappably prepared. It simply shifted its sourcing to South Korea and other regions, where semiconductors are plentiful and unaffected by Japanese turbulence. Conversely, other players in the tablet market like RIM were caught flat-footed, having failed to match the foresight and flexibility of Apple’s COO and Jedi Master Steve Cook.

In a volatile market where companies must fight for every iota of their share, the difference between Apple and RIM can have outsized consequences—RIM’s misplay helped send its shares tumbling by over 10%. By now, asking corporate honchos to be more like their counterparts at Apple is almost a cliché, but the proof is in the bottom line. As businesses hone their forecasting strengths, they develop the adaptability to execute on strategies for investment and future growth, and sustain short-term competitive advantages. Of course, no one should ignore traditional planning indicators such as debt-to-GDP ratio and interest rates. In the coming decade, smart forecasting will be the single greatest determinant in the ability for American companies to thrive where others founder.

Gene Tanski is CEO of Demand Foresight, a firm whose forecasting software increases profitability and supply chain performance for its global client base of manufacturers and distributors.