Over the past 20 years we’ve seen a progression in how we view the supply chain. We moved from a focus on supply—what and how much to supply or replenish—to the demand-driven supply chain, which maintained that supply chains need to take an outside-in view triggered by the demand signal. While demand-driven thinking was certainly a step in the right direction, it placed too much emphasis on the intermediate result of a demand forecast and not enough on the supply chain’s true end goal: providing service to your customers.
It’s time for the next evolution in supply chain planning, and it’s all about the service-driven supply chain.
Update Your Forecast All You Like, But it Will Never be 100% Accurate
In a market of growing demand volatility and higher service expectations, too many companies get locked into traditional processes and a familiar increasing number of SKU combinations, they load up on inventory to accommodate long-tail, erratic demand. This invariably leads to problems like extra freight costs and excess and obsolete inventory that either needs to be written off or sold at a heavy discount. Planners are continuously in reactive and inefficient “firefighting” mode, spending most of their time changing suggested replenishments and manipulating service levels instead of driving performance.
Items with intermittent, unpredictable or “long tail” demand are a growing part of business, which is making demand forecasting and inventory management a headache.