In the premier edition of the CSCO Insights newsletter, I focused on the “holy grail” of supply chain management – the balancing of supply and demand. This critical business issue has been at the center of supply chain management from the beginning of the industrial society. So, why have we not solved it?

At the heart of demand planning is forecasting, which has been attacked by every computer model/set of algorithms known to the profession.  But predicting human buying behavior?  Forget it. We can only work to reduce the forecast error, not eliminate it.

Who is responsible for forecasting anyway? I have seen it in sales, in supply chain teams, in marketing, in production, in logistics, in planning, and once or twice in finance. Yet the hierarchical organizational approach has never yielded satisfaction in this regard. Even with a teaming approach, and a matrix organization, most companies have not learned how to build consensus and then decide on the single number.

Some business models rely less on forecasting: make-to-order products, direct to consumer, forward orders, order-to-delivery, off-price retailing, and others.  Interestingly, even these businesses have to forecast something, and eventually grow to have to forecast more.

Somewhere along the way, we invented “Sales and Operations Planning” (S&OP), the supposed panacea for the problem – i.e., if sales and operations would meet regularly, collaborate, and reach a consensus, then at least we would have a single-number forecast.  Yet, we are still struggling with this. Who runs the meeting?  Who attends? Who prepares? Where do the inputs come from? What time frames are forecasted and when are they updated? What levels of product categories are included?

Then, an amazing event began occurring – strategic sourcing, and “low-cost country sourcing” (LCCS).  Now, China and other off-shore suppliers are making more and more parts and products, adding 4-6 weeks to lead times, and further complicating the process.  We continue to struggle with forecast accuracy, and we have extended the lead time. 

We, therefore, have a truely challenging problem – forecasts are less accurate over time, and long lead times preclude quick adjustments.

Additionally, while multiple trading partners may own the inventories along the chain, someone is paying for the working capital, customs, taxes, security, and the many other costs present in international supply chains.  Total landed or delivered costs increase, and inventories expand with safety stocks and over-production.

Some would say, just solve the forecasting problem - get people to forecast better, with best practices, the right process models, and the best enabling technologies.  Take the point-of-sale data, factor in all the seasonal and other variables, and predict demographics, discretional income, and you can reduce forecast error to its minimum.  Even then, we seem to have supply problems – long lead times, poor supplier relationships, lack of teaming, weak integration, product health and safety, and other supply chain issues permeate the supply side, so that the balance is never optimal.  Timing is often off as well, so that synchronization is rarely right.

The CSCO Insights newsletter was created in partnership between myself and Supply Chain Digest to uniquely meet the needs of current and aspiring supply chain executives, needs which we think are not well served today. We are not able to provide all the answers, but we do raise and clarify the key issues, and provide supply chain executives the solid advice to deal with nagging problems. The “big deal” with demand planning and supply management is that it will not go away, and it will never be perfect.

There are some best practices, leading technologies, and proven approaches available to help all executives make progress on minimizing the impact of high forecast errors and poor demand-supply synchronization.

The primary message here is that this issue is persistent and will not be solved easily. What we all should do is strive for the best – the best people, the best processes, and the best enabling software….all under the right business and supply chain strategy for your company and its markets….and then outperform the competition. 

Supply chain executives should indeed take the lead on this initiative. No matter how strong the company culture is in production, marketing or finance, no one department or process can work or solve demand planning/supply management issues alone.  The best performers almost always have a strong CSCO leader and a collaborative culture – both internally and with customers and suppliers.