Few weeks back, I wrote an article on the role of demand planning, forecasting and inventory optimization in achieving Lean Manufacturing. This article evoked a great response among readers and since the comments on this blog were not working for some time in between, I got maximum comments in my mail box or in the discussion I posted on one of the social media sites.
The responses were largely questions and expert opinions and I thought to share some of them here with the readers as these are highly rich in content
and will be helpful for all of us to think about our strategies to achieve lean manufacturing with or without the help of planning.
Largely, there were two schools of thought on whether planning (forecasting and demand planning) helps in achieving lean manufacturing to an extent that the investments made in these areas are justified and are able to provide the returns accordingly. Thoughts were divided and one group was sure to say that forecasting is just a guess and will remain a guess so it is sheer time wastage to improve your guesses and hope that these will help you in your lean objectives whereas the other group was as sure as the first one on the fact that forecasting can surely help in achieving lean objectives as it reduces inventory and improves the service levels, which makes easier for the manufacturing operations to stick to a single product line for optimum period so that the manufacturing line efficiency improves.
To quote some of the responses, Wally Johnson (VP Supply Chain/Operations at EPIC Technologies LLC) said, “A forecast is nothing more than an educated guess. The better your guess, the closer you get to maximizing you revenue and minimizing the waste in either lost sales or excess inventory. As you reduce your lead times and your ability to respond, the forecast becomes less important. At the limit, planning is reduced to communicating needs to suppliers and aggregating immediate needs from customers. So, no planning doesn't help you get lean, but the less lean you are, the more you need it”. Another comment from Michael Pitcher (President, Operations Excellence LLC) is - “Forecasting can be used, at least initially, to size buffers and marketplaces. This is especially true for new products, cyclical/seasonal products, or short life-cycle products. Once buffers are established, actual pull must be used to recalculate and resize buffers and marketplaces. So, there can be value to demand planning and forecasting. On the other hand, it can be a huge waste of time and energy when over emphasized.”
We had quite an opposite viewpoint from Connie Wendzicki (COO at Griffin Technology), who says – “The demand planning is what you do to calculate the correct inventory levels when you implement the lean system. These inventory levels have to be revised frequently as the demand and supply patterns change. Even Toyota had an extensive planning department to accomplish this function. If you set-up lean without figuring out the right inventory levels you can be in for a few big surprises! On the other hand - analysis paraysis is not good either. Better to put the system in place with the best inventory levels you have vs. wait forever until you figure out what the "perfect" inventory levels and reorder points should be. There is some tolerance for error. You will at least see where the problems are (where inventory is piling up or where lines are starved for inventory) if you implement the system and you can tweak it then”. Connie is helped by the comment from Ron Golan (Director at XML Limited) who mentioned that, “…my experience taught me to believe in continuously trying to optimize demand planning and forecasting - you may not hit bulls-eye, but the closer you get, the more efficient you are in minimizing lost sales and excess inventory. And the build-to-order approach - that might work for Dell, but is completely unpractical for so many other companies. Plus, in many cases you'll just be passing the issue to your suppliers, and remember some of us may be on the receiving end of this”.
Carlos Moreno (Senior Logistics and Supply Chain Analyst with Medtronic) mentioned a third approach with his comment – “Lean is a tool for continuous improvement is a cycle that never ends. It may be applied to improve lead times, supplier performance, operations and supply chain processes just to give some examples. Forecast and demand planning are useful as strategic and long-term planning tools and also subject for continuous improvement. Since forecast and demand planning are estimated guesses based on crystal ball projections (marketing and sales forecast), I would see them as variables out of the control of the supply chain management processes for inventory control and customer order fulfillment”.
These were few of the responses and comments and the one thing that came out clearly and I replied to them in most of my replies is that alone forecasting or demand planning is not enough and the another part of our strategy here needs to include reduction in lead times so that the dependence of operations on accuracy of forecast reduces. Basically, if the supply chain responsiveness is fast (in other words lead times are low) then the organizations have more capability of responding faster to the changing demands and hence they can achieve leaner manufacturing processes as well as lower inventories with improved service levels.
I liked the idea of freeing up of operations with their dependence on forecast accuracy and as put up by Swaminathan Appu Iyer (DGM – Distribution & Logistics at Reliance Retail Limited), “The manufacturer whose efforts to effectively forecast and plan demand are being undermined by an increasingly complex business environment. Manufacturers large and small are struggling with the fact that demand forecasting and planning, never a simple process, are today being made much more difficult by trends such as globalization, shortened product lifecycles, and customer demand for more product variety. In fact, many manufacturers are finding that, despite what they thought were their best efforts, forecasting error rates are actually rising”. This shows that planning is something that most organizations are still struggling with.
All these comments and inputs lead me to think about a joint strategy that has to have a blend of both i.e. a focus in planning as well as supply chain responsiveness to achieve our lean objectives. I echo comments from Charles Stuart (Director at TGX Limited) who says that – “Puneesh, I would like to clarify my view - it is as you also approach it - a blend of both. A forecast is a forecast - a guess, a prediction etc. Good tools and good process will generally make a better forecast. But fewer businesses put the same kind of effort into LT reduction which can have responsiveness and an inventory benefit. I have worked in businesses that have done both approaches with significant benefits from each element. I suggest it should not be either/or but both”
Before I sign off, I would like to thank all the experts who shared their approaches and thoughts on the topic. I could not highlight comments or inputs from all contributors in this post due to similarity in thought communication in rest of them but tried to capture the essence of all so that readers get to know from who’s who of the corporate world on the future strategies on the topic and accordingly design the same for their organizations.
The responses were largely questions and expert opinions and I thought to share some of them here with the readers as these are highly rich in content
and will be helpful for all of us to think about our strategies to achieve lean manufacturing with or without the help of planning.Largely, there were two schools of thought on whether planning (forecasting and demand planning) helps in achieving lean manufacturing to an extent that the investments made in these areas are justified and are able to provide the returns accordingly. Thoughts were divided and one group was sure to say that forecasting is just a guess and will remain a guess so it is sheer time wastage to improve your guesses and hope that these will help you in your lean objectives whereas the other group was as sure as the first one on the fact that forecasting can surely help in achieving lean objectives as it reduces inventory and improves the service levels, which makes easier for the manufacturing operations to stick to a single product line for optimum period so that the manufacturing line efficiency improves.
To quote some of the responses, Wally Johnson (VP Supply Chain/Operations at EPIC Technologies LLC) said, “A forecast is nothing more than an educated guess. The better your guess, the closer you get to maximizing you revenue and minimizing the waste in either lost sales or excess inventory. As you reduce your lead times and your ability to respond, the forecast becomes less important. At the limit, planning is reduced to communicating needs to suppliers and aggregating immediate needs from customers. So, no planning doesn't help you get lean, but the less lean you are, the more you need it”. Another comment from Michael Pitcher (President, Operations Excellence LLC) is - “Forecasting can be used, at least initially, to size buffers and marketplaces. This is especially true for new products, cyclical/seasonal products, or short life-cycle products. Once buffers are established, actual pull must be used to recalculate and resize buffers and marketplaces. So, there can be value to demand planning and forecasting. On the other hand, it can be a huge waste of time and energy when over emphasized.”
We had quite an opposite viewpoint from Connie Wendzicki (COO at Griffin Technology), who says – “The demand planning is what you do to calculate the correct inventory levels when you implement the lean system. These inventory levels have to be revised frequently as the demand and supply patterns change. Even Toyota had an extensive planning department to accomplish this function. If you set-up lean without figuring out the right inventory levels you can be in for a few big surprises! On the other hand - analysis paraysis is not good either. Better to put the system in place with the best inventory levels you have vs. wait forever until you figure out what the "perfect" inventory levels and reorder points should be. There is some tolerance for error. You will at least see where the problems are (where inventory is piling up or where lines are starved for inventory) if you implement the system and you can tweak it then”. Connie is helped by the comment from Ron Golan (Director at XML Limited) who mentioned that, “…my experience taught me to believe in continuously trying to optimize demand planning and forecasting - you may not hit bulls-eye, but the closer you get, the more efficient you are in minimizing lost sales and excess inventory. And the build-to-order approach - that might work for Dell, but is completely unpractical for so many other companies. Plus, in many cases you'll just be passing the issue to your suppliers, and remember some of us may be on the receiving end of this”.
Carlos Moreno (Senior Logistics and Supply Chain Analyst with Medtronic) mentioned a third approach with his comment – “Lean is a tool for continuous improvement is a cycle that never ends. It may be applied to improve lead times, supplier performance, operations and supply chain processes just to give some examples. Forecast and demand planning are useful as strategic and long-term planning tools and also subject for continuous improvement. Since forecast and demand planning are estimated guesses based on crystal ball projections (marketing and sales forecast), I would see them as variables out of the control of the supply chain management processes for inventory control and customer order fulfillment”.
These were few of the responses and comments and the one thing that came out clearly and I replied to them in most of my replies is that alone forecasting or demand planning is not enough and the another part of our strategy here needs to include reduction in lead times so that the dependence of operations on accuracy of forecast reduces. Basically, if the supply chain responsiveness is fast (in other words lead times are low) then the organizations have more capability of responding faster to the changing demands and hence they can achieve leaner manufacturing processes as well as lower inventories with improved service levels.
I liked the idea of freeing up of operations with their dependence on forecast accuracy and as put up by Swaminathan Appu Iyer (DGM – Distribution & Logistics at Reliance Retail Limited), “The manufacturer whose efforts to effectively forecast and plan demand are being undermined by an increasingly complex business environment. Manufacturers large and small are struggling with the fact that demand forecasting and planning, never a simple process, are today being made much more difficult by trends such as globalization, shortened product lifecycles, and customer demand for more product variety. In fact, many manufacturers are finding that, despite what they thought were their best efforts, forecasting error rates are actually rising”. This shows that planning is something that most organizations are still struggling with.
All these comments and inputs lead me to think about a joint strategy that has to have a blend of both i.e. a focus in planning as well as supply chain responsiveness to achieve our lean objectives. I echo comments from Charles Stuart (Director at TGX Limited) who says that – “Puneesh, I would like to clarify my view - it is as you also approach it - a blend of both. A forecast is a forecast - a guess, a prediction etc. Good tools and good process will generally make a better forecast. But fewer businesses put the same kind of effort into LT reduction which can have responsiveness and an inventory benefit. I have worked in businesses that have done both approaches with significant benefits from each element. I suggest it should not be either/or but both”
Before I sign off, I would like to thank all the experts who shared their approaches and thoughts on the topic. I could not highlight comments or inputs from all contributors in this post due to similarity in thought communication in rest of them but tried to capture the essence of all so that readers get to know from who’s who of the corporate world on the future strategies on the topic and accordingly design the same for their organizations.
I tend to go with the thought of attacking both the sides in equal manner. While correct forecasting is still a potent weapon to fine tune your supply chain but importance of lead time reduction is more than ever now as inventory carrying costs are hitting the enterprises in many ways these days.
ReplyDeleteThanks for the initiative of compiling the thoughts of industry experts on this subject. Love your blog!
Lean is a concept of continous improvement, arguing that there is no need to improve forecasting is not a lean attitute. Forecast can be improved it is not merely an educated guess. In my previous organization we have improved the demand management processing several ways.
ReplyDelete1)Demand planning specialist scrutinize demand and all the manufacturing parameters-- yield, lead time, BOM,... They look for EC level to ensure proper cut over and ensure they reflect current and projected reality.
2)Demand has been classified and prioritized trough a set of rules. For example an order is more important than a forecast in production scheduling. A sample order has priority over a regular order because it addresses business development. Some orders have priority over others because of current contracts or business relationship. By defining who gets priority, MPS is more efficient.
3)Building a supply chain network through which clients will provide they own forecast will improve accuracy and reduce the internal guessing, the human time effort for guessing.
The customers forecast will be directly uploaded in the planning system.
4)Demand projected revenue output will be sized against revenue projection and expectation. Demand planning will explain the dynamic of the suppply process to the S&OP team that will decide on actions to be taken.
The primary concept Quality of demand = Quality of supply still true. This does not however precludes lean efforts in other areas of supply
such as improving capacity planning, overall leadtime, inventory, ect....
Jean Luc MAGRE