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Reliable Forecasting and Responsive Supply Chains Reduce Inventory Risk

Recognizing the uncertainty of forecasting may help you more effectively plan stock levels.

Companies want to know what their customers will buy in the upcoming months or year so they can scale up or down fast. Yet many companies try to narrow the funnel too early--by pinpointing specific sales estimates. That's a sign of trouble, says Kien Leong of Kinetica, editor of Production-Scheduling.com.

Learning From Top Performers
Comparing the best performing companies to others in a recent study by the Aberdeen Group, found that top companies achieved an average forecast accuracy of 83%, compared to 61% for all other companies. What's more, 44% of the companies surveyed said their top strategy in 2012 is increasing collaboration among forecasting, sales and marketing planning to improve responsiveness when conditions change.

Through more reliable forecasting and planning, companies can better match demand with production capacity and inventory levels. That allows them to balance two troublesome inventory risks: lost sales opportunities when inventory is insufficient and the many wastes of excess inventory. Companies that gain a handle on forecast accuracy will outperform their competitors.

Education Comes First
For some manufacturers, the solution to better forecasting is to invest in supply chain planning education for key participants in the process. Not every company can hire highly trained specialists, and people often wear many hats. Forecasts may consist of projections based on the past or a sales manager's revenue goals. A deeper understanding of supply chain planning and forecasting should come before investing in software and systems.

The key seems to be training and communication first, then new software solutions--if they're needed. Once you develop a better understanding of forecasting up and down the chain, you'll have a solid idea of what you need in any software you purchase.

 



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