Is forecasting the pull for a Lean Supply Chain?

Paul Myerson, author of Lean Supply Chain and Logistics Management is my guest next week on the Business901 podcast. Paul claims to have written a practical guide and from this excerpt I think you can tell. He takes the most complex subjects and makes them simple. I re-read many parts of the book not because I did not understand but because I wanted to understand more. This is an excerpt of the podcast:

Joe: When we think about lean, we always think about pull. Is forecasting the pull for a supply chain?

Paul: The combination of forecasts and customer demand are the “pull”. I became involved in this in the early ’90’s, with what they call “Quick Response.” which is now typically referred to as “CPFR” (collaborative planning forecasting and replenishment), which is basically working with your customers to develop accurate forecasts by getting to actual point of sales data, warehouse withdrawals, etc, and using that information to have a much improved forecast. My thinking is, if you can get your top 20 customers going through some kind of Quick Response/CPFR program, you’re at least collaborating on the forecast and improving its accuracy, in addition to managing their inventory of your products and even placing orders for them.

That top 20 customers could be 80 percent of your forecast. You could then minimize what they call the “bullwhip effect,” where things get magnified upstream in the supply chain causing disruption. You can help to get closer to actual demand and build that into your forecast and have a much more accurate forecast. That’s one major step to becoming leaner because we know inventory is used to cover a lot of things, including variability in demand and lead time.

Joe: You’re saying the secret to good supply chain is getting deeper with your customers?

Paul: Right. It’s very important to have an efficient supply chain which can give you a competitive advantage, and with technology today, it’s a lot easier to accomplish. These days, you hear a lot of the terms like “visibility” and “collaboration.” It’s critical to have visibility downstream in your supply chain towards the customer and upstream with suppliers. Maybe it’s not a secret anymore because a lot of people are doing it, but I think some organizations still look at it as more of a cost center where “our customer wants us to collaborate or work with them on forecasts or manage or place their orders for them.” You have to look at it as a competitive advantage, a strategic choice to go that route to improve not just your process with your customer and make them happy, but to improve your process and also your suppliers’ processes.

About: Paul Myerson has been a successful change catalyst for clients and organizations of all sizes. He has more than 25 years of experience in supply chain strategies, systems, and operations that have resulted in bottom-line improvements for companies such as General Electric, Unilever, and Church and Dwight. He is currently Managing Partner at Logistics Planning Associates, LLC, a supply chain planning software and consulting business (www.psjplanner.com).