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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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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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