Supply Chain Consultants Help with Forecasting/Inventory
As we’ve talked about in class, forecasting is very important for companies to improve supply chains, leading to overall success for the business. We’ve learned about a lot of different methods that companies can use to forecast. It is then up to the managers to analyze the results of the forecasts to create successful inventory strategies. Unlike in class, this process does not always have a correct answer, and it turns out in real life, managers are not always the best at interpreting forecasts correctly. In the article at the bottom, Lora Cecere, the Founder of Supply Chain Insights, explains how forecasting is a problem for many companies. She explains how companies invest a lot of money into constantly improving forecasting methods. Once they get the forecasts, managers do not know what to do with the results, so the inventory strategies are not improving at all. Without improving inventory strategies, the companies are not any more successful.
Cecere says the problem is the obsession with improving forecasts. There is no point in improving the forecasts if managers don’t even know what to do with the forecasts in the first place. No matter how many improvements are made to forecasts analyses, no forecast will ever be 100% accurate, so beyond a certain point, the benefits of forecasting are marginal. Instead, companies need to better train managers on how to use forecasts to create better inventory strategies. This is something that is easier said than done, especially in today’s changing market. Cecere explains that in the past, safety stock inventory was the main focus, but that is changing as the market is becoming more ecommerce-based. The rise of ecommerce has made inventory design harder because it requires more complex logic on things like batch sizes and production sequencing. As a result, Cecere believes cycle stock is important than safety stock when it comes to inventory design. To correctly design cycle stock, managers need to use technology well, although this can lead to more problems since technology is often difficult to implement. Cecere believes that companies would be better investing time and money to teach managers how the inventory technology works rather than throwing away money on improving forecasting results.
Overall, there are clearly benefits to using both forecasting analyses and inventory design methods. Yet, there is only so much benefit a company can get out of improving their forecasts. At a certain point, there needs to be an investment in implementing better inventory designs. Technology is a huge help but brings challenges of its own. Even managers who have the best intentions can cause problems if they do not know how to correctly analyze the forecasts to design successful inventory strategies. That is where consultants like Lora Cecere can be a huge help to companies. Consultants can train managers and show them how to use the technology that they need in order to have successful companies. Consultants specifically work to make the supply chain analyses friendlier and more useful for companies to use.
Do you think it is worthwhile for companies to work with supply chain consultants to improve forecasting and inventory designs? Or should companies only hire managers that are competent enough to do it on their own?
I think supply chain forecasting is extremely necessary. But i agree with Jordan that the most important part of forecasting is using the forecasts you have created to benefit your company. If a company does not know how to use their forecast, it renders the forecast they created useless. As we saw from class, there are many different ways to forecast, and we did not touch on nearly all of them. Since there is so much variation in the forecasts and so many forecasting options out there, I agree with Jordan that the most import aspect of a company forecasting is using the information they have obtained properly. This article by retail customer experience (https://www.retailcustomerexperience.com/blogs/understand-your-customer-to-predict-future-demand/) talks about how the most important aspect of creating a accurate forecast is knowledge of ones customer base. Using the prior knowledge of your customer base, a company can factoring demand (internal and external) along with lead time variability, they can create a optimal order schedule and carry safety stock. Adjust for special order considerations, prevent stockouts and excess inventory. A key point the article makes is to readjust your forecasting plan daily. While all of this may be true in order to help forecast for a company, as we have said before, the most important aspect of forecasting is properly using the information the forecast uses for your company.
I think that the anwer is not one or the other. Input and output are the two main componets on the profit of a firm, so I do not think that one is more important than the other; or that one determines the other. The first thing to do is forecasting the demand because without that forecast we can not know how much inventory we need and how long does it needs to be in the warehouse and in the process.
So I would say that forecasting the demand is the first step, the main step becaue without a good assumption (forecast) all the process will be no productive because we will end up with more inventory than we need or less.
But this is the basics. Any company needs an acqurate forecast and good administration of inventory, and there is where the manager comes. It is his job to make sure that the whole process is working as efficient as possible and that no inventory is hold and wasted. But this does not mean that all the responsability is in the manager, they do need support; and the more the better. So, it is important to have good managers but it is also important to have consultants to help them improving their job. Managers are not perfect and they are not expeced to be machines, they also need feedback and they learn with experience.
So, in the supply chain there is no step more importan than the other, it is all about how everything flows togheter. It is better to be good in every step than extroardinary good in only one.
An example of this is the company Best Buy´s, who in November 2011 could not manage their inventory so they were uncapable of meeting their demand. They had good managers and good employees, but one step failed, so the whole process failed.
https://www.tradegecko.com/blog/out-of-stock-problems-and-solutions-walmart-nike-bestbuy-case-studies
This is a very interesting article, as it changed my perspective on the benefits of forecasting. It would make sense that managers could lose sight of the bigger picture and only strive to improve the forecasting methods, rather than improving their skills to interpret these forecasting numbers. Something that I believe was overlooked is the importance of using better judgment throughout the forecasting process. Managers can have biases at different stages of the forecasting process so it is also important for management to work towards reducing these.
Jordan, the question to pose at the end of your blog post is an important one. After working on the Supply Chain Analysis group project, I have learned how important understanding the management of inventory is. My group is working with a running shoe and apparel store and through their operations, we have learned how important it is for them to be aware of their inventory at all moments. Within this particular company, they are assisted by the larger brand on different financial and operational aspects including the accounting aspects and the management of their inventory. However, I could tell that this would be something the store owners would not be able to do on their own. Forecasting and inventory is not something that comes naturally to most. Research has to be done on the two topics in order for them to be understood and executed well. The equations necessary for measuring inventory costs or regulating cycle inventory can be difficult to grasp. Because of how impactful forecasting and inventory management are to a business’s success, I believe that it is necessary for owners and executive management to work with supply chain consultants to understand the processes from the very beginning and progress from this heightened starting point. Besides, as you mention, throughout time technologies change and grow. No manager who graduated about 20 years ago will be able to understand or work these technologies. This is also why even experienced and knowledgeable individuals should work with supply chain consultants; to constantly improve their processes.
In response to your question, I think that consultants should certainly play a role. If a firm is only willing to hire managers that are experts in technological implementation, they will drastically narrow their possible employees. Furthermore, the role of a manager is much more than just dealing with such implementation issues. They also have to worry about dealing with and motivating employees, along with a host of other operational necessities. That is why consultants can fill a void, where they bring specific and dependable knowledge on issues that other people should not be expected to know.
It is quite wasteful that companies are putting so much money into something that their managers do not even understand. I believe this is a result of a deeper problem. According to Forbes, “98% of managers believe managers at their company need more training to deal effectively with “important issues such as professional development, conflict resolution, employee turnover, time management and project management.” That being said, it is now not so shocking that managers are unaware of what to do with the forecasts once they receive them. Additionally, the data suggests a widespread, chronic lack of support for new managers, which can result in challenges in getting the managerial results companies require. If companies want forecasts to be used better and their overall management to improve, they must invest in training and continually re-training their employees.
https://www.forbes.com/sites/victorlipman/2016/10/01/a-startling-98-of-managers-feel-managers-need-more-training/#19eb1fda5e8b