How To Use Supply Chain Design To Reduce Forecast Friction

HOW TO USE SUPPLY CHAIN DESIGN TO REDUCE FORECAST FRICTION By Wally Klatch The Forecasting and Supply functions are part of the same flow because one feeds the other … the depletion of inventory in the supply chain of a customer is a demand driver for the supplier…. stock- outs or overstocks and production variance are symptoms of forecast friction. T T he Forecasting and Supply Chain functions in many companies are viewed as two separate entities, even though Forecasting feeds planning data to Supply Chain, and Supply Chain feeds actual results to Forecasting. This article describes the benefits of having the two functions much more organically integrated so that they are two parts of the same process flow. With this approach, both the Forecasting function and the Supply Chain function can be designed and operated in such a way so that they benefit each other and, consequently, the company as a whole. FORECAST FRICTION DEFINED The term “forecasting” means different things in different contexts, so it is important to define it in order to have a clear understanding of the Supply Chain process and its benefits. As shown in Figure 1 (Level of Forecasting), forecasting ...