Better forecasts translate directly into better business decisions. In her Supply Chain Shaman blog, Lora Cecere wrote, “What is a six percent improvement in forecast accuracy worth? Based on AMR Research correlations, a six percent forecast improvement could improve the perfect order by 10 percent and deliver a 10-to-15 percent reduction in inventory. The greatest impact is seen in slow-moving items on the tail of the supply chain.”
Infusing Demand Sensing into the demand management process can affect many Key Performance Indicators (KPIs) closely monitored by management:
- Financial KPI’s
- Revenue and Profit Margins: sense and react to upswings in demand to capture additional revenue and increase profit margins by avoiding costly supply chain inefficiencies stemming from demand uncertainty
- Cash-to-Cash Cycle Time: Free up cash flow and achieve higher return on invested capital by reducing inventory levels of products.
- Supply Chain KPI’s
- Perfect Order: Improve customer service by producing the right product mix matched to actual demand.
- Production Efficiency: Stabilize production schedules and avoid emergency changeovers to meet surges in demand.
- Logistics: Reduce transportation costs by avoiding transshipments and expensive emergency shipments; and reduce warehouse costs with lower inventory levels.
“One of the numbers we talk about is 20 percent improvement in lag time,” said Schroeder. “That correlates into safety stock improvement across the network and is very substantial in terms of inventory. We’re heavily focused on that.”
There are other benefits beyond inventory reduction, added DeGroot. Natural disasters, such as Hurricane Sandy, can of course wreak havoc on a supply chain. “Our previous demand solution didn’t help with forecasting. With Terra, we get a daily release on the marketplace and retailers’ ability to get stock back onto the shelves.”
The installation and execution of Demand Sensing, said DeGroot, helped Kimberly-Clark become “a more demand-driven supply chain.”