Four Ways to Build Agility into Your Production Forecast

The rapidly evolving global supply chain dynamics of the last few years have led manufacturers to rethink their strategies. Early 2020 through mid-2022 saw soaring demand for certain medical products and consumer goods, manufacturing disruptions due to Covid-19, and backlogged transportation channels. Those conditions led to delays in available materials, parts, and products that extended from weeks to months. In response, many manufacturers stockpiled parts and materials in order to provide greater predictability and control over meeting their commitments to customers.

However, since the second half of last year, transportation backlogs have begun to ease, and Covid-19 disruptions have diminished—all while rising inflation has started to cool consumer and business spending. In some markets, this is already leading to an oversupply of products and components and pushing manufacturers back toward a just-in-time approach to inventory management and production planning.

The see-sawing of customer demand and supply chain conditions has reinforced the need to implement an agile forecasting and manufacturing methodology with a strong focus on rapid response. By practicing agile forecast management, manufacturers can more effectively take advantage of shifting supply windows and changes in customer demand to create and maintain a competitive edge.

Four Strategies to Build Agility into the Production Forecast

Let’s look at four core strategies that manufacturers should implement to build agility into their manufacturing forecasts.

1. Rapid Response Using Integrated Forecasting
   Rapid response to customer demand is a critical link in the agile supply chain. For many years, price was viewed as the winning criterion. Now manufacturers have inexorably moved their sourcing of components based on availability, and their supply chains continue to increase in complexity. As a result, creating and maintaining an agile supply chain with integrated forecasting is mission-critical for manufacturing.
   Managing today’s supply chain complexity with spreadsheet-based forecasts is nearly impossible. Instead, it’s more evident than ever that manufacturers who want to remain competitive need to transition to one of the essential performance-tuning business tools available: the integrated forecasting module of an enterprise resource planning (ERP) system. Integrated sales forecasting allows manufacturers to look at past and present data and marketplace trends in order to predict the company’s future financial performance.
   Meanwhile, an integrated production forecast is a collaboration between sales data and manufacturing capacity. Manufacturers using an integrated production forecast can drive how many finished goods are needed to accommodate the demand represented by the sales forecast. Because forecast integration is based on data that is updated in real-time, manufacturers can pivot to address changes in supply chain conditions, industry shifts, and most importantly, the customer’s demand.
2. “Unlimited” Forecasts with Multiple, Meaningful Scenarios
   Sales forecast data is critical for predicting the company’s future financial performance. Utilizing the integrated sales forecast allows the sales team to produce virtually unlimited forecasts that incorporate multiple, meaningful scenarios based on market trends and historical data analysis. For example, they are used to represent potential revenue by territory, which can be broken down into individual sales forecasts and then converted into key performance indicators (KPIs) to drive performance.
   Moreover, unlimited sales forecasts allow side-by-side comparisons between potential and existing customers, salespersons, different periods of the year, and year-over-year data analysis. As unlimited sales forecasts are solidified, they can be consolidated into a master sales forecast.
3. Integrated Production Forecast for Improved Efficiency
   Once the master sales forecast is approved, the data is used to help populate the integrated production forecast, so manufacturers can start production based on the accumulated data. Utilizing the integrated production forecast will improve efficiency at every stage of the supply chain. For example, by properly managing the integrated production forecast, manufacturers can prevent stockout situations and subsequently lost sales.
   Manufacturers can also use the integrated production forecast to achieve the optimal order quantity, which represents the most cost-effective amount of inventory that a business should have at any given time. Also known as economic order quantity (EOQ), it is the amount of order quantity that meets customer demand while minimizing the total costs related to ordering, receiving, and holding inventory. Managing order quantities to their optimal levels allows businesses to keep the cash flow on a consistent, upward trajectory.
4. Comparing Forecasts for Continual Improvement
   At a time when continuous improvement is central to maintaining a competitive advantage, manufacturers can leverage integrated forecasting incrementally to improve, not only their forecasts but other processes across the organization. Notably, when sales and production forecasting functionality is integrated with real-time data from the ERP and manufacturing execution system (MES) software, the management team can gain insights into where products were produced and delivered to forecast—as well as where there were gaps.
   From there, managers can dig into the data to understand how processes such as sales, support, production, inventory management, and logistics can be improved to remove those gaps. In this way, manufacturers can cross the lean threshold by improving one process at a time.

Conclusion

In an evolving global economy, it is important to integrate sales and production forecasting with ERP and MES functionality. By utilizing the integrated forecast module within the DELMIAWorks manufacturing ERP system, businesses can gain the deeper insights needed to grow across the spectrum from quote to cash. Additionally, manufacturers have a consistent, predictable, and agile demand stream, managed in an intuitive interface, for properly planning labor, parts, and logistics. This leads to better forecasting and agile manufacturing improvements that create satisfied, happy customers.