Forecasting in business is akin to astrology. It is a prediction science (or should I say art?). In human life, astrology is always a choice. In supply chains, Demand Forecasting is not a choice but essential, activity today, I know the word Essential is in direct conflict with the heading of this article. How can something that is essential, become extinct/transform? Well, read on, to get hold of the hypothesis.
Demand forecasters/Analysts are business astrologers who try to do a balancing act between overestimation and underestimation of demand. Each extreme possibility comes with its own set of negative consequences. We all know, higher inventory locks capital whereas stock outs lead to unfulfilled demand, thereby affecting profitability. Let me touch upon the WHY of forecasting? Supply chain echelons (Supply networks) spread upstream and downstream with your business as the point of reference. In the past, every entity in this network was primarily keen on managing and optimizing activities within its four walls. Businesses looked at their own historical data predominantly and used time series techniques to predict their future demand. Collaboration or transparency were buzz words then. Every entity in the supply chain held on to their data as private and classified material. Even otherwise, the upstream and downstream demand interface was not very prevalent. By practice, forecasting was more an inward focused exercise.
In todays digital era, manufacturing businesses have no choice than to adopt digital technologies for their existence (Digital Transformation Demon). The external business ecosystem is changing in unprecedented ways, enabled by digital technologies. Advanced digital marketing techniques can sense what a person can potentially buy in a specific period, with an 80% accuracy. That is the power of technology today. I presume that future technology can even have subliminal messages underlying in a digital advertisement that can potentially trigger an impulsive buying behaviour in a persons mind. Technology will know your strengths, likeness, and weakness much better than you know yourself. Future technology will possess the potential to shape and influence the demand, more than ‘true demand’ (customer need). This can give you a perspective as to , how complex the future of demand dynamics is going to be.
Tomorrows Digital Supply chains will be more customer centric and external focused that internal focused when it comes to data dependence. Generation Y and Generation Z are fuzzy customers with different mindsets and buying behaviours . They expect business to personalize their offering of any product, in any variant in any quantities of their choice. This is the central idea behind Mass Customization or ‘lot size of one’. This means that the supply chains must be extremely dynamic and hence the term Demand-Driven Supply Chain. The old way of demand prediction from historical data will not suffice and the need for more of near real-time data will become the fundamental. How will the near real-time data collection be possible? Only if the supply chain (upstream and downstream) is an end to end integrated, with the idea of collaboration. Cross echelon supply chain visibility will become the new normal. With IIoT, DL, ML, Upstream and Downstream collaboration and interfacing, data on real-time consumption can be made available, that were unimaginable before. Adding to it, the power of demand shaping at the disposal of the digital marketing and sales team will create a new and different data set. This could be their target to induce inorganic demand, online. Additionally, it is imperative to include socioeconomic trends data, holiday seasons data, weather forecasts, traffic congestion data, and many more complementary data to predict near real-time/short-term demand. With new ways of conducting business and new sets of data and new market dynamics, will the conventional time series based statistical forecasting suffice to predict demand (Read short-term demand)??
Futuristic technologies are super advanced to handle these complex decision algorithms and predict accurately the supply demand gaps. Will the people running the business be change ready? I believe that "Closed-Loop Predictive Planning intimately integrated with S&OP" will be the future norm. Near term demand driven calculations are super complex and requires the intelligence and power of AI (For example: Bayesian Network, ML, DL) to drive decision making insights. Tomorrows demand plan will be highly granular focusing on micro segments of the market. With the speed of execution expected to be in hours, the human intervention in this process, will be more of handling exception management, rather than execution management. The responsibilities of the workforce will be different.
The paradigm shift is around the corner. My recommendation to the readers, from manufacturing industry and consulting backgrounds is the following. Like any change, shift should happen in the mindset before it becomes a reality. Focus on educating the need first. Do not rush. This is not an overnight exercise. It is better to start small. I have encountered customers having their Safety Stock numbers static for years. Same is the case with lead times of different processes. You cannot be static when the business climate is dynamic. Start identifying dynamic data and processes (that are static today) and explain the need for dynamism. Make series of intelligent and relevant pilots, to gain trust and confidence of your management and peers. Being laggards is better than not adopting the change at all. Supply chain is not the same and will never be same again. Ride the change wave. Everything is difficult before it is easy. Cheers! Transform your supply chain with real-time insights! Connect with our experts to stay ahead in the demand-driven era. Contact us at (support@nichebrains.ai)
Comments