How Much is Enough -Without Being Too Much?

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How much should I make when demand is uncertain? How much should I order?  How much is too much when inventory has a shelf life after which it is no longer usable or sellable? 

These are uncertain times.  For many industries, past sales are no longer valid in predicting future demand. At least not until the economy gets back to a new normal after the pandemic.  Demand is way down, or even completely gone in some industries (such as foodservice and travel).  Demand is way up or at record levels in other industries (such as PPE and cleaning products).

This is the first in a series of blogs on the topic of lot sizing to determine optimal batch quantity for production or ordering in uncertain times.  I’ll explore some of the historical methodologies and some of the newer philosophies.  My focus is on adapting these methodologies and philosophies for products with finite shelf life when demand is uncertain.

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The Great Sequestration

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Yesterday the President of the United States extended nationwide social distancing guidelines for another 30 days.  Our lives and our supply chains are disrupted not only by the pandemic, but also the resulting Great Sequestration.  How should our supply chains adapt to these times and prepare for what comes next?

As most everyone else is, I am sequestered at home, washing my hands frequently, and just going out for essentials. While I’m sequestered, I’m also thinking about how this is going to impact the companies and industries I regularly work with. Not only how to manage the current disruption, but also how to prepare for the future.

After being in touch with multiple clients and industry organizations, I see three essential components to success when coming out the sequestration.  It doesn’t matter whether you are in Senior Management, Demand Planning, Supply Planning, Procurement, or anywhere else in the supply chain, these three things will be essential in how well you weather this crisis.

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SAP IBP – Back to the User

To everything, turn, turn, turn, there is a season…  

When I started out in planning and forecasting, there were no integrated systems.  We built production schedules for the next week or two based on recent sales and open orders.  We knew there were certain products that sold well at certain times of the year (ice cream cones in summer, saltines in the winter).  We built inventory for these products based on last year’s sales and this years’ projections.  And we did it all in spreadsheets.  As we moved to more sophisticated systems, users had less flexibility to quickly adapt to changing requirements.  Now the pendulum is swinging back to user flexibility. Continue reading →

Plan to be Nimble

The fog of Business

“No battle plan ever survives contact with the enemy.”
― Helmuth von Moltke the Elder

“You can always change you plan, but only if you have one.”
― Randy Pausch, The Last Lecture

“Even the best plans can change if there’s an accident.”
― Lemony Snicket, The Reptile Room

I recently read an article on LinkedIn that said if you have a contingency plan, you’ve already admitted failure.  I couldn’t disagree more.  Unless you are omniscient, there is no way things will go exactly as planned.  Only the All-Knowing One can have a plan that foresees every eventuality. The rest of us need a plan B.
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Aggregation for Statistical Forecasts

It’s an age-old question.  Should forecasts be done at item (product) level or at a higher level? Obviously, you need a forecast at product level to tell you what to make.  And if you ship from more than one location, you need forecasts at product and location to tell you where to have it.  But what is the best level at which to run your statistical forecast?

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Refining Project Scope to Make the Best Use of Capital

Allocation of capital can be critical to the long-term success of your company. How can you know you are doing the best projects when your company your capital expenditure (capex) is limited?

A recent report from Credit Suisse indicates that the capex of large U.S. companies dropped last year. The top 1,500 listed US companies allocated only 6.1% of revenues to capex. However, a company that spends capital wisely has a tremendous opportunity to build value.

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