Forecasts that handle uncertainties and provides a more stable inventory planning in a troubled time
Many buyers and stock planners today face challenges they have never encountered before. When the Corona pandemic broke out a couple of years ago, virtually every type of trade around the world was affected. Supply and demand changed dramatically when factories closed and consumer behavior quickly changed. The change came extremely quickly and what a "volatile demand" is, many quickly became aware of. Some companies saw dramatic increases in demand while others were forced to see large reductions in sales.
Under these conditions, building up security stocks that are flexibly adapted to today's large variations in demand and combine the requirements for a high level of service and low capital tied up may seem impossible. But, it is absolutely crucial for success that companies work with forecasts and have a forecasting strategy that is designed for a shaky and anxious world. Conversely, the risks have increased dramatically with forecasting routines that are not adapted to the current situation. Warehouse shortages, obsolete inventories, customer dissatisfaction, poorer service levels and disruptions in supplier relationships when good forecasts of inventory requirements cannot be provided are some examples.
When the pandemic began to ease, many people probably breathed a sigh of relief and believed that trade would return to normal before the pandemic. That has not been the case. There is war in Ukraine, there is a lack of components in some industries, supply chains are broken, fuel prices are rising, transport capacity is declining, commodity prices are soaring and buying behavior is changing with a decrease for e-commerce and an increase for retail.
"Problems in the supply of goods are the new normal"
At the beginning of May we can read the following in Dagens Industri; " Unfortunately, the crisis in the international supply of goods and logistics that started in connection with the pandemic does not seem to be easing. On the contrary, new severe shutdowns due to covid eruptions in China have led to renewed momentum problems. And it is now undoubtedly having global repercussions. Disruptions, delays, increases in prices and other problems in the supply of goods are unfortunately the new normal that will persist for a long time ”.
That all this creates uncertainty in inventory planning is not surprising. The question is how to reduce this uncertainty and at the same time get a more stable inventory planning that alleviates the effects. An important prerequisite is to work with forecasts, but perhaps to do so in a slightly different way than a few years ago.
Easier to see patterns with an intelligent system
Companies that have invested in systems for a digitized and automated inventory management have a large advantage here compared with companies that remain in old routines and handle inventory planning and purchasing manually with Excelark as an aid. With an automated system, it is possible to analyze deviations more quickly and make it easier to calculate demand even in a volatile market. In addition, you get a completely different opportunity to work proactively instead of reactively, which is the case with manual routines, and with BI systems that are not normally made to handle large demand variations per product.
The fact that BI systems work reactively means that you only receive information when something has already happened. Today, the challenge is completely different; to work proactively to avoid unwanted things happening, such as building up too large stocks or purchasing goods that do not meet demand.
The fact that SOLO is an intelligent system with automatically calculated forecasts that are based on demand instead of sales, and take the help of machine learning, means that patterns in large amounts of data can be detected quickly and the system also compensates for sharp variations. At the same time, the current situation means that even this type of system may need to be supplemented with qualitative information. With many unpredictable events, it is in principle impossible to obtain reliable forecasts even with an intelligent system, but SOLO provides the conditions for quickly detecting and analyzing deviations from forecasts that prevent too much or too little being purchased for the warehouse.
Work actively, simulate forecasts in a digital copy
and create commitment for the forecast work!
With an automated system that provides access to several years of historical data on demand, it may be possible to base the forecasts on an earlier period that in terms of demand corresponds to what it looks like today. Finding such a period can of course be difficult at present, but the possibility exists and should be considered. Another possibility is to simulate forecast calculations using different parameters. In this way, you can see how the forecasts are affected with different settings, and it is possible to obtain probability forecasts for what could happen under different conditions.
Simulations can also be done in a digital copy of the supply and supply chain in SOLO. It opens up opportunities for modeling and adjusting, but also for increasing dialogue in the company. In the last two years, inventory and purchasing routines have become a priority issue for many company managements. The need to establish closer collaborations between purchasing and sales departments has also increased. This creates the conditions for adding important qualitative data and wise insights to the forecast work.
Experiences from different employees and a broader commitment are more important than ever when it comes to quickly discovering new demand patterns, managing the variations and matching inventory levels to demand. For many buyers and stock planners, it makes it easier in a job where today, and for a long time to come, you will be faced with many tough challenges!