Collaborative forecasting: the sitting duck of demand planning

Bram Desmet
Apr 15, 2018 9:00:00 AM

When trying to optimize the forecast, the need for close collaboration with the customer seems obvious – and yet most organizations are still reticent. Nevertheless, there are irrefutable benefits in collaborating closely to gain more insight into the customer’s demand patterns.

Typically, just a handful of clients are responsible for huge fluctuations in demand. They irregularly order high product volumes and expect short lead times. To meet those customer needs, companies keep large safety stocks. That practice has a negative effect on the working capital and often leads to excessively high depreciation costs for obsolete stock.

So, why has collaborative forecasting still not become common practice? Trust, for instance, is an often-heard reason for reluctance, but their aversion to consignment stock also discourages a lot of companies from cooperating with each other to improve their forecast accuracy. Vendor managed inventory (VMI), an inventory management technique in which a supplier of goods is responsible for optimizing inventory held by its distributors or customers, can facilitate a more thorough understanding about customer consumption patterns, for instance. But VMI goes usually hand in hand with consignment stock agreements, whereby vendor-supplied stock is not paid for until it is used. Although consignment stock carries some financial risk, 9 out of 10 organizations keep more safety stock and incur bigger inventory losses than if they were to hold consignment stock. That revolves around better insight into customer patterns and thus better demand forecasting and planning.

If all that is required to save organizations a lot of money is an open conversation with the customers who disrupt production schedules the most, why aren’t all Sales departments sitting down with those customers? A large part of the challenge is for Supply Chain to convince Sales to pull together. Or in other words: what’s in it for Sales? The direct, measurable benefits of VMI don’t usually contribute to the sales targets. The task for a logistics account manager is to break this stalemate.

Logistics account managers typically try to optimize the supply chain integration with the customers: collaborative forecasting can be one of the methods used to stabilize the supply chain by reducing the unexpected, non-forecastable demand fluctuations. Logistics account managers are not yet omnipresent, but this new role is increasingly being recognized in the FMCG sector.

In view of all the advantages collaborative forecasting achieves, it is not an option to simply wait until logistics account managers are in place. Supply chain experts should strive to streamline all the links in the logistical chain, and sooner rather than later. Increased collaboration with several parties, including for demand forecasting, is an inherent part of that.

Eager to find out how you can motivate sales to contribute in your forecasting process?
Read our next blog: "3 tips to win sales team’s buy in to collaborative demand planning"

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