Tuesday, February 7, 2012

Demand Forecasting in SCM

I read the articles on demand forecasting, that highlighted the importance of accurate forecasting in todays world where demand uncertainty is very high. Accurate response allows companies to postpone their decisions regarding items that have the most unpredictable demand, until they have sufficient market signals to match supply with demand. Its not only about companies having versatile and dynamic supply chains that are easily adaptable to unforeseen risks, but also having that real insight on the demand patterns of their products. Companies must have the ability to collect, understand and use the enormous amount of available data in decision making. Preparation is the key in todays market where there are always unforeseen risks. Apple in 2011 was able to ramp up its IPAD 2 production and react to the unexpected demand with ease despite the tsunami in Japan. The NAND chips used in the IPAD 2 were supplied by Japanese Toshiba and its production was severely affected by the tsunami. Apple was able to shift its production to South Korea and other regions where semiconductors were in abundant supply and was therefore able to absorb the risk associated with the japanese tsunami. Compared to Apple, other players such as RIM didnt have that strategic foresight to avert the adverse risk created by the tsunami and were therefore badly affected.Many companies have realized the importance of demand forecasting and are therefore hiring demand forecasting and business intelligence specialists that do data mining and analysis to uncover trends and correlations to better predict demand. More data means increasingly accurate models for demand forecasting.

Despite the ability of companies to cater to sudden demand spikes,its really important to ponder over the possibility whether companies are resilient enough to handle sudden busts in demand due to environmental catastrophe or political uncertainity. Companies manufacture a certain minimum quantity of their product and a sudden dip in consumer spending could leave them with a left over inventory that if not sold in future could incur significant losses. Are companies resilient enough to respond to such environmental vagaries that affect the product demand that is usually considered to be fixed and not variable?




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