![]() This is why flexible aggregation across products or over different planning horizons is critical to a company’s ability to leverage the same demand forecast in all their supply chain planning. To effectively execute replenishment, capacity planning, and other business decisions, retailers and CPG companies need multiple forecasts with different levels of granularity that look at different time spans. Why, then, would slow-moving items that sell only a couple of units per location per day, if even that, require the same level of forecast granularity? Even if the day-product-location level forecast for a slow-moving item is itself somewhat inaccurate, forecasting at this level of granularity ultimately makes it easier to aggregate demand-whether for different periods of time, across products (for example, total demand per product per distribution center), or by total demand per product in a month or customer group, etc. Additionally, modeling can help optimize production capacity. Another key benefit of granular forecasting lies in its ability to allow a manufacturer to aggregate data on products that share a certain raw material and create a forecast that will reveal the true amount of materials needed to produce each product, helping them to reduce costs by optimizing bulk purchasing and reducing the number of shipments needed. The benefits of a granular forecast are obvious when thinking of fresh food products whose short shelf-lives sometimes call for intra-day forecasts at the product-location level to prevent spoilage.įor CPG companies, detailed forecasts allow planners to model the effects on demand based on sale or promotional information. Accurate demand forecasts can be leveraged throughout your supply chain to improve decision-making and outcomes in areas such as store and distribution center replenishment, capacity planning, and resource planning.ĭemand forecasts can be developed on different levels of granularity-monthly, weekly, daily, or even hourly-to support different planning processes and business decisions, but highly granular forecasts are always extremely valuable. In practice, this means analyzing the impact of a range of variables that affect demand-from historical demand patterns to internal business decisions and even external factors-to increase the accuracy of these predictions. Introduction: What Is Demand Forecasting, and How Is It Done? 1.1 What is Demand Forecasting?ĭemand forecasting is, in essence, developing the best possible understanding of future demand. In closing, as Supply Chain professional in general and Inventory Planners in specific we need to know our turns but the value that each successive turn will bring in terms of cash generation.Īs usual, we encourage and welcome your comments.1. Here is a graphic version of this progression: What are the savings for each incremental turn? Again we are assuming that COGS are fixed. Management has challenged us to get to 12 turns. If we were at 11 turns currently at the same base of $50M in inventory, the cash benefit diminishes where an additional turn would generate $4.2M in cash. If we are one turn per year, increasing to two turns would generate a whopping $25M in cash. The table below shows the value of an additional turn: Current Inventory $M Let us assume you run a business with $50M in inventory. In fact, as turns increase the savings diminish. We believe that Finance and Supply Chain folks generally have the opinion that a turn accounts for a fixed or set amount of savings or cash generation. The calculation could not be any easier or after having seen it, anymore intuitive. We are assuming that the Cost of Goods Sold (COGS) on which turns are calculated remains fixed. V=Value,savings,or cash generated by increasing T to T+1 turns.I=current quarter or year end inventory.In that way, only those who really want to read it can do so. Besides the business value of answering such a question, getting to the answer allows us to do a bit of math in our blog which we have put in the appendix of this posting. If we are at 7 turns, how much cash will be generated if we get to 8 turns? It seems this would be something worth knowing. They asked “Why do you want to know that?” They followed back with their other stock answer “We do not track that.” This last comment is Finance talk that in truth means, “Why are you bothering me with this ridiculous question. We have asked our partners in finance and they just gave us a blank stare and did what finance people always do. There has never been a good answer to this question.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |