Saturday, October 25, 2014
Supply Chain Management Forecasting: Walmart
Forecasting in a supply chain is the framework for all strategic and planning decisions. Accurate forecasting successfully determines how much inventory a company must keep at various points along its supply chain, allowing for the ability to shape and scale resources. Furthermore, forecasting is of the utmost importance for supply chain managers, as reliable and accurate forecasts can contribute to achieve the most challenging objective: matching demand and supply.
Uncertainty in predicating future demand may thwart industry supply chain management, manifesting unreliable sales. This issue forms the basis of inventory management and planning systems. Industry leaders expend considerable time and effort to eliminate problems and introduce new processes and systems to enhance accuracy and efficiency involved in entering, planning, and fulfilling orders.
Walmart supply chain operations, for instance, focuses on demand planning, forecasting, and inventory management. Such forecasts provide customer demand estimates for a particular product during a specified period of time (based on historical data, upcoming sales and promotional drivers, and competition trends). Parenthetically, demand planning is critical to effective inventory management (see figure below for the multiple forms of forecast movement).
As an example, Walmart was first to implement a companywide Universal Product Code (UPC), in which store level information was immediately collected to analyze and forecast supplier demands. Within the supply chain, manufacturers and suppliers synchronize their demand projections under a Collaborative Planning, Forecasting and Replenishment scheme (CPFR). In this scheme, Walmart worked with key suppliers (on a real-time basis, through Internet utilization) to collectively determine demand forecast. Years later, following UPC bar codes, Walmart implemented Radio Frequency Identification (RFID) technology to replace it’s original bar-code innovation. The company believed this replacement would reduce its supply chain management costs and enhance efficiency; for example, this technology assisted in reducing instances of stock-outs at the local stores.
Was this innovation the key to Walmart’s highly successful supply chain management? What other methods may help to reduce inventory costs while simultaneously enhancing produce availability across the supply chain? Regardless, Walmart’s supply chain and inventory operations provides valuable learning points that businesses may take and apply to their own operations.