When it comes to optimizing supply chains, one of the most important set of calculations that need to be made are the forecasts. Being able to make accurate forecasts could make or break a company’s efforts to optimize their supply chain, as it is central to it in more ways than one.
“Why is the Forecast so Important?”
Every supply chain is based on manufacturing and delivering a product to consumers. As such, ultimately, it is designed around the sales of the product itself. At the time when the supply chain is designed however, those sales are not yet certain and that is where forecasts come into play.
Essentially, forecasts use statistic models to attempt to estimate the amount of sales (and therefore the quantum of supply) that will be required by the company. Needless to say that is a fairly basic way of putting it, and in actual fact the forecast is highly complex – involving an estimate of not just the total supply required but also its placement and timing.
From all of this however, one thing should be clear: It is important to be able to forecast as accurately as possible. A number of factors can have a huge impact on the accuracy of these forecasts, including the validity of historical data as well as the prediction of future events that may affect the forecast.
Optimizing a Supply Chain Based on a Forecast
Assuming you are able to forecast the demands of your supply chain with reasonable accuracy, you can then design the supply chain around that demand. The forecast will help you to determine the amount of inventory and continuous supply that you require, as well as its distribution, and safety stock levels depending on the unpredictability of the demand.
It is important to remember that the optimization should be in regards to minimizing costs while ensuring sufficient supply – so operational costs such as manufacture, storage and transportation are critical.
In some cases it may even be possible to optimize a supply chain by outsourcing certain logistics to help reduce the capital outlay as well as the operational costs. When doing so it is crucial to keep in mind that outsourcing comes with risks of its own however, and needs to be properly managed.
As you can see, supply chain optimization is really a delicate balancing act. It relies on forecasts to be as accurate as possible, but at the same time needs to also account for the fact that they can be unpredictable. Because it is so sensitive and crucial, many companies that do not have the in-house experience to manage it themselves often rely on the services of a supply chain consultant.
The bottom line is that a supply chain needs to be designed and developed carefully to ensure that it is optimized. Doing so is definitely a science, and it requires a particular skill set in order for it to be successful and ultimately benefit both the company and the customer – which should be the goal.