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I just read a blog post entitled How do you feel when someone mentions predictive analytics? Well, I feel like it’s a good thing. How about you?

 

One commenter replied that predictive analytics = forecasting and that it’s just a different label for the same thing. Well, true enough, given that the verb predict is synonymous with the verb forecast.

 

I submit to you two other synonyms: examine and analyze. An analysis of your historical demand will lead to a better understanding of the numbers. When one understands the elements that drove demand in the past then one can review these elements and assess their validity going forward. The result is a forecast achieved using both quantitative and qualitative methods. This is a very good thing!

 

That said, it is important to measure forecast accuracy both before and after human intervention. Measuring the impact of revisions allows the forecaster to spot bias. Bias exists when forecast accuracy is repeatedly and negatively affected by one or more individuals.

 

In practice, predictive analytics and forecasting should have the same meaning. Professional forecasters don’t blindly predict the future. Beyond looking for trends, they seek to understand the numbers. Nothing new here!  The big difference is that today’s forecaster is equipped with modern technology and fun stuff like graphical reporting. One thing I can tell you for sure is how forecasters feel about modern technology — pretty darn good thank you very much!


There has been a lot of focus on optimizing the supply chain for order fulfillment.  The on-going efforts to perfect the ‘order to cash’ process have yielded great rewards.  But what about returns?  Automation has reduced the number of returns due to errors however the world must move from a linear to a more circular economy and this will impact the entire supply chain.

 

The notion of a circular economy is really quite wonderful.  Imagine an industry that produces no waste or pollution, and where products are designed for safe and non-intrusive disposal.  Imagine an industry where 100% of unconsumed or partly consumed products are returned for re-use.

 

Kudos to the Association of Battery Recyclers for their contribution to the circular economy.  From their website:  “The members of the association share a dedication to environmental and community responsibility.” Spent batteries are turned into lead metal, plastic and sodium sulfate, which are used to manufacture new lead batteries and other useful products.  Their website also states that lead batteries have a 99% recycle rate within most of North America – impressive!

 

With greater awareness and increasing environmental pressures from various stakeholders, more companies are incorporating green practices into their daily activities.  I believe distributors can play an important role in the circular economy by selecting products and suppliers that behave responsibly and by participating in the efforts to recycle and/or re-use the products that they sell.

 

Goods are coming down the supply chain – we’re pretty good at that.  Now it’s time to move stuff back up.  Distributors can take an active role in balancing the financial responsibility of making money with their responsibility to benefit society as a whole.   This must include their responsibility to preserving the environment by actively engaging management into environmental thinking.


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There is a famous anecdote about Volvo car dealers heavily discounting green models because consumers preferred other colors. Volvo’s manufacturing plant, seeing the resulting spike in demand for green models, perceived it as consumer interest and upped the production. That’s right…even more green cars! Ouch!!

 

It’s a sad story that’s often repeated, and a story that begins with a demand-shaping strategy to offload unwanted inventory. It’s a prime example of how a dealer’s {read distributor’s} behavior can create confusion and lead to unnecessary increases in a manufacturer’s inventory holdings and, by extension, the stock of its suppliers, too.  


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When supply chain professionals plan for future demand, their thoughts gravitate to meeting customer service levels while minimizing the amount of capital tied up in inventory.  Demand planning is about having the right product in the right place at the right time … right? Four occurrences of the same word would cause my old English teacher to shudder at this excessive use of a word in a single sentence. However, let us return to the important business of meeting consumer demand without incurring the cost of excess inventory.


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Improved forecast accuracy leads to many downstream improvements in operations and ultimately, on the balance sheet. That is why Gartner, Inc., a highly respected information technology research and advisory firm, puts forecast accuracy at the top of its pyramid of supply chain metrics. In a study published in February 2012, Gartner stated that a 6% forecast improvement could improve the perfect order by 10% and deliver a 10-15% reduction in unnecessary inventory. These are very impressive numbers and a very good reason to work towards improving forecast accuracy.


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