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Business INSIGHTS e-News for Manufacturers
Collaborating With Customers

Constant dialog with key clients helps prevent unexpected demand changes.

Most manufacturers forecast long-term demand based on history, sales estimates and market analysis. They typically use some form of Manufacturing Resource Planning (MRP) or Enterprise Resource Planning (ERP) to run the numbers and tell the plant what to make.

Shingo-prize winning author Michael Balle, who is also a Lean Enterprise Institute gemba coach, sheds a different light on the process. He says that forecasting is really an effort to understand the market. The more realistically manufacturers can model the drivers of overall market consumption, the better they get at understanding what drives demand.

"We make short-range guesses about which specific product customers will order," Balle explains. "This means continually improving the early warning system and having real-time information about what customers are doing."

Involve the Customer Base
If you're selling to a retailer, Balle says, you need real-time point-of-sale information to understand what your customers will order to replenish inventory. If your customer is a business, get to know the customer's production scheduler and keep up with what's planned each week.

With a relatively accurate forecast of overall volume and information about immediate needs from your customer, you can estimate the expected high and low volume for each product and use a buffer of finished good inventory to fulfill daily demand. Keep in mind that your overall volume is easier to forecast than the mix.

Next Steps
If you've already improved your planning abilities, Balle recommends tracking these key performance indicators:

  1. On-time-delivery
  2. Inventory level
  3. Frequency of expedited production in response to stockouts

Balle says manufacturers also improve their response to demand changes by developing good relationships downstream with internal customers and upstream with internal suppliers. You'll get better, fresher demand information and increase your flexibility to match it with supply. Forecasting, planning and scheduling require teamwork across functions and enterprises along the supply chain to develop a common understanding of what each intends to do and why.


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