CLAREMONT, CALIFORNIA – November 20, 2023 –  In a business landscape characterized by unprecedented business volatility, maintaining stellar customer service emerges as a critical differentiator for companies navigating the ebbs and flows of the current market. Manufacturing and Supply Chain Consultant Lisa Anderson, MBA, CSCP, CLTD and President of LMA Consulting Group Inc., highlights the pivotal role of backlog management in elevating customer service levels, especially significant in a landscape where 88% of buyers, according to Salesforce, deem experience as crucial as the product or service being offered. LMA Consulting Group specializes in supporting manufacturers and distributors in strategic planning and comprehensive supply chain transformation, focusing on enhancing the customer experience and robust business growth.

The decline in customer service, a nearly 20% drop according to Forrester, coupled with diminished customer patience, has spotlighted opportunities for companies to prioritize superior service. This is where proactive backlog management plays a vital role, ensuring high service levels, on-time-in-full (OTIF) delivery, short lead times and preemptive communication.

Backlog management can encompass a myriad of statuses and potential scenarios during order fulfillment, ranging from inventory shortages to waiting on customer approvals, purchase receipts, production engineering, international shipping paperwork or even dealing with credit holds and quality controls. “One of the secrets to success in enhancing service levels lies in implementing a proactive backlog management process. Transitioning from reactive to proactive stances can swiftly elevate customer service levels. We have seen it with a building products manufacturer where service levels increased from 38% to 90% by adopting a forward-looking view and assigning orders with tight timelines to specific people or departments to ensure on time fulfillment. We had an aerospace manufacturer elevate service levels from the low 60%s to the low 90%s by implementing a backlog process that tracked progress through multiple steps of the manufacturing process, adding capacity where needed, and introducing advanced technology solutions. It can be done and it delivers results.” states Ms. Anderson.

For deeper insights into navigating the complex landscape of global supply chains, download Ms. Anderson’s special report The Road Ahead: Business, Supply Chain & The World Order and her eBook SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth.

About LMA Consulting Group – Lisa Anderson, MBA, CSCP, CLTD

Lisa Anderson is the founder and president of LMA Consulting Group, Inc., specializing in manufacturing strategy and end-to-end supply chain transformation.  Ms. Anderson is a recognized Supply Chain thought leader by SelectHub, named a Top 40 B2B Tech Influencer by arketi group, a Top 16 ERP Expert to Follow by Washington-Frank, in the Top 10 Women in Supply Chain by Warner PR, in the top 55 Supply Chain & Logistics Experts by flexport, and a woman leader in Supply Chain by RateLinx.  Her primer, I’ve Been Thinking, provides strategies for creating bold customer promises and profits. An expert on the SIOP process (Sales, Inventory Operations Planning), advancing innovation, and making the supply chain resilient, Ms. Anderson is regularly interviewed and quoted by publications such as Industry Week, Bloomberg, Fox News and The Wall Street Journal. For information, sign up for her Profit Through People® Newsletter or for a copy of her book, visit LMA-ConsultingGroup.com.                 
                                                                                                      ###
Media Contact Kathleen McEntee | Kathleen McEntee & Associates, Ltd. | p. (760) 262 – 4080 | KMcEntee@KMcEnteeAssoc.com

The post Lisa Anderson, Manufacturing & Supply Chain Expert Highlights Proactive Backlog Management as a Keystone for Elevating Customer Service in Manufacturing appeared first on LMA-Consulting Group, a supply chain consulting firm.

Lisa Anderson was quoted in a Harvard Business Review report about supply chain volatility and uncertainty that are part of the new normal.

###

Since early 2020, supply chain disruptions have captured global attention like never before. Newspaper headlines reported dramatic events ranging from surging toilet paper demand to empty store shelves to a ship blocking the Suez Canal. These events only worsened the existing global supply chain crisis. Much of the disruption was pandemic-related, but it hasn’t waned nearly as much as Covid-19 has. Many organizations find that supply chain volatility and uncertainty are part of the new normal.

Consequently, companies find it difficult to accurately predict demand. In
February 2023, Harvard Business Review Analytic Services conducted a
global survey of 459 respondents familiar with their organizations’ supply
chain operations. The survey found that of those whose organizations
execute demand forecasts, 69% say, on average, the accuracy of their demand
forecasts has been below 80% over the past three years. And respondents
are not particularly pleased by this result; only 8% indicate that they are
“very satisfied” with the average level of accuracy of their organization’s
demand forecasts.

Indeed, forecasts are inherently wrong. The questions often are just how
wrong a forecast will be and when that failure will occur.

Extreme Events Changed the Game

It is difficult for organizations to predict demand and plan operations if they can’t be certain about what lies ahead. Lisa Anderson, founder of Claremont, Calif.-based LMA Consulting, says the military term “VUCA”—volatile, uncertain, complex, and ambiguous—best describes global supply chains at present.

“Since the pandemic, new issues have arisen—the Russia-Ukraine war, for example—that are causing issues in many supply chains,” she says. “Oil and natural gas are used in the production of multiple products, and this affects everything from medical devices to fertilizer and food production. When you add the heightened tensions between the U.S. and China, and extreme weather events, the picture is one of continued disruption. We have to stop waiting for it to end. It’s not going to end.”

To read the full report, click here.

Originally published on Harvard Business Review, June 15, 2023

The post Forecasting in Flux: Importance of Supply Chain Flexibility appeared first on LMA-Consulting Group, a supply chain consulting firm.

Why Demand Planning is Critical

During times of volatility including inflation and recession, forecasting future sales becomes even more vital than it is during regular business cycles. Emerging from the pandemic, the global markets have experienced rising costs and significant demand. In the U.S., vast stimulus was added to the economy, creating pent up demand. At the same time, there was a lack of supply as manufacturers cut back during the pandemic and couldn’t find the people, materials, and equipment to keep up “regular” demand, let alone heightened demand.

Additionally, other supply chain disruptions arose such as the Russia-Ukraine war, further exacerbating supply chain challenges. Unfortunately, companies dependent on Chinese manufacturing are suffering further due to global logistics challenges, China’s lockdowns, and more. No one has the “right” inventory in the “right” place at the “right” time (and definitely not at the “right” cost) without a robust demand planning process.

Demand Planning (Sales Forecasting) To the Rescue

Demand planning is integral to utilizing scarce resources effectively. No one can afford to produce the “wrong” products with limited labor and material resources! Creating a demand plan will provide the best insight into future sales. As the key step of a SIOP process (Sales, Inventory & Operations Planning), also known as S&OP, creating the demand plan provides visibility into what customers will need. Most clients build a demand plan for a minimum of a year, focusing in on the budget year timeframe. In certain industries that have longer-term contracts, the demand plan will go out 2-5 years to provide insights into long-term decisions such as buying facilities.

The best practice demand plan will include the following information:

• Markets and/or customer groups
• Product groups that are meaningful from a manufacturing and/or materials standpoint
• Any noteworthy regional impacts (for example, if Asia is growing at a higher rate than Europe, this insight is important)
• Dollar forecast (and/or appropriate currency) by month by region/ distribution center/ production facility (depending on what is needed to ensure supply)
• Quantity forecast by month by region/ distribution center/ production facility (depending on what is needed to ensure supply)
• Unit of measure
• If you have multiple units of measure, a base unit of measure would be ideal.
• Key events, promotions, and/or
• Price changes
• Product transitions
• Forecasts for new products, customers, and/or locations
• Incorporates quote probabilities and inventory agreements

Best practice demand planning processes help executives predict the unpredictable.

Do You Need Demand Planning Software?

Of course, the answer to whether you need a demand planning software to be successful in forecasting is “it depends”. Multiple clients have utilized already existing tools and/or Excel (not demand planning software) to create a simple forecast that was fed into a SIOP process and achieved exponential results. For example, an industrial manufacturer took information from their ERP system, applied simple statistical formulas and created a forecast in Excel for 24 months with a greater degree of accuracy on the current fiscal year. They were able to utilize this forecast to successfully order long lead time materials and plan capacity (including taking actions to offload production they could not support and purchase additional equipment to shore up certain work centers in their operation), resulting in high service levels (OTIF, on-time-in-full) and successful execution of dramatic growth.

On the other hand, there are other situations where a demand planning software is required to create a sustainable process. Generally-speaking, high volume, promotion prone consumer industries require a demand planning software to succeed long term. For example, a food and beverage manufacturer used a forecasting system to create a base demand plan. It was able to pick up on changing trends, segregate promotions from regular business, and provide a more directionally-correct demand plan by location which was essential to supply Walmart, Walgreens, and Costco locations successfully. In addition to improving OTIF, the big retailers charged for stockouts at customer locations.

Demand planning is not a black or white situation. There are countless industries and examples in the middle. In certain situations, it makes good sense to utilize a demand planning software, and in other situations, it wouldn’t add value. It could depend on the customers, the capabilities of the company, other investment opportunities and rates of return, etc. Software itself never drives success. In fact, in many situations, it could drive worse results if not implemented well and/or if the company doesn’t have the resources and capabilities to maintain it. On the other hand, software can automate the repetitive so that your resources can focus on exceptions to drive greater success. For example, a lawn and garden tools manufacturer that supplied agriculture customers as well as customers like Home Depot and Lowes could achieve success with or without a demand planning software. In their specific situation, they already had robust process disciplines in place and high-skilled resources, and so it made good sense to upgrade the process with a demand planning software to take results to the next level and refocus resources away from mundane tasks to higher value tasks.

How to Select a Demand Planning Software

When demand planning software will provide an upgrade to your process and results, attention should be applied to selecting the best software to meet your business needs. As is true with best practices in ERP selection, selecting demand planning software starts with your business requirements.

Collect your business requirements to support a demand planning process. What functionality is important in developing a demand plan for your situation. For example, a few questions to consider in getting started include:

• Will statistical formulas suffice in gaining a directionally-correct forecast?
• Do you have promotions? If so, are they repetitive at the same time during the year and typically the same type of promotion?
• Do you get customer forecasts and/or consumption / usage data? If so, would analyzing to this greater level of detail provide a value-added benefit over statistical formulas?
• Do you have new products, customers, and/or locations? If so, would you be able to model the forecast of a similar product, customer or location?
• Do you gain better insights into your forecast at a product line level or aggregate grouping of products? If so, would you increase or decrease the forecast by a percentage across the entire group and want the software to spread it to the appropriate mix of products and/or locations?
• Do you have better insights into your forecast at the location or region level? If so, would you gain value by letting the system spread the forecast to the appropriate mix of products?
• Do you have price changes occurring throughout the year that you’ll need to incorporate as of certain dates?
• Do you need to incorporate quotes and/or inventory agreements?
• Do you solely need a demand planning system or are you looking for a supply planning and/or replenishment system as well?

Next, research potential demand planning software options. Although this appears easy to do online, it is far from easy to get to the appropriate level of detail to end up with software options in the appropriate price range with the most critical functionality features. As a globally recognized expert in selecting software, our Google searches only yield appropriate results less than 20% of the time. Frustrating! You don’t need a lengthy list. A few decent choices will suffice.

Depending on your company size, complexity, investment budget, and other factors, you will perform a simplified or comprehensive RFP (request for proposal) where you compare the software options to your business requirements to narrow the selection options. Typically, you should demo 2 or 3 options to see how the software will be used to meet your business requirements. Track how each software satisfies your business requirements and focus on those critical to your process. It is easy to get lost in bells and whistles the software suppliers want to show you instead of focusing on what will drive value for your business.

In addition to comparing functionality, you’ll want to compare pricing and partners. Pricing is another black hole. Getting apples to apples pricing is nowhere near as easy as it appears, and it is always extremely misleading. Dig into pricing until you have a side-by-side comparison of like items, considering short term and long term. Typically it is best to use a total cost of ownership calculation over 5 or 10 years, depending on your circumstances.

Finally, dig into the partner. 80% of success is in implementation, and your partner will be integral to this result. Every supplier will have success stories and talk a good game or they will not be in business very long. In fact, there are more sharks in software sales than in almost any other industry. They sound wonderful, but when rubber meets the road, it is often a different story. Make sure you don’t marry the wrong partner while selecting the “right” software.

Using a Demand Planning Software

The great news is that if your business is well-suited to use a demand planning software, using the software will simply enhance your manual process. Remember, it won’t work to implement a software without solid process disciplines and data integrity. On the other hand, assuming you are starting with a solid base, you’ll gain key advantages.

• Automate your repetitive manual tasks.
• Enable greater use of statistical formulas and will choose a “best fit” formula based on historical data.
• Gain access to increased functionality to manage events and promotions.
• Reduce effort and time in calculating forecasts at lower levels of detail which are statistically incorrect and focus efforts at more meaningful levels (groups of customers, products, etc.)
• Typically your forecast will easily transition to your ERP system and into your planning and capacity analyses.
• Focus attention on exceptions and deviations to drive results
• Gain accuracy at sku and location detail – in most situations, more effort won’t yield results; however, software will yield results.

Demand planning software will add value if you have a solid base. The only question is how much value in comparison to the cost and resources required to implement and maintain. For certain industries, it is integral to achieving superior delivery performance with high levels of OTIF and quick lead times.

Incorporating into SIOP, also known as S&OP

Demand planning software will not achieve the intended results if not incorporated into a SIOP process (Sales, Inventory & Operations Planning). The demand plan is the “S” of SIOP and required to drive capacity and staffing, sourcing, long-lead time material, and customer and product priority decisions at a minimum. SIOP inclusive of demand planning is not a one-time process; instead it should be conducted on a monthly cadence, looking out at a 12-24 month horizon. Results will follow.

As clients gain traction, they are tempted to skip monthly cycles. Keep the priority focus on SIOP inclusive of your demand plans. If you focus on exceptions and changes, the process will be quick yet critical to keeping resources aligned on priorities and addressing changing conditions. Undoubtedly, with the level of volatility in today’s business environment, sticking to the process will yield exponential results. For example, one of our most successful clients is vigilant in prioritizing Executive SIOP meetings (and associated processes). Even in months where key executives believe there are no changes, 80% of the time something arises through the process that keeps them ahead of the curve in pivoting strategies or ensuring the alignment of demand and supply, and most importantly, the related resources. This client will undoubtedly be better prepared for the next curve ball.

If you want to pursue upgrading your demand planning process, upgrading your use of technology and/or incorporating into a SIOP process, review our SIOP webpage of resources or contact us to discuss further.

Did you like this article?  Continue reading on this topic:
Managing Increased Complexity with High OTIF & Efficiencies Using Technology

The post Upgrade Demand Planning Processes & Software to Navigate Economic Challenges appeared first on LMA-Consulting Group, a supply chain consulting firm.

The post Navigating Current Global Business Challenges with SIOP & Demand Volatility appeared first on LMA-Consulting Group, a supply chain consulting firm.

The post Craig Young, Senior Director of Operation, Nellson appeared first on LMA-Consulting Group, a supply chain consulting firm.

Predicting the Unpredictable

Every client believes their demand cannot be predicted. After all, customers don’t know what is going on in their end-to-end supply chain with the global supply chain chaos. Sales teams are optimistic and either forecast too much, hoping Operations will produce and store “just in case” or provide high level dollar forecasts but have no idea which geography it will be sold from or which product grouping will be sold. Marketing might be lost in the clouds analyzing “old” information since the markets are changing real-time and rapidly. New Product Development is racing to keep up with evolving demands. So, how can we predict the unpredictable?

As this has been a common theme with smart, proactive clients, it is worth paying attention. It is possible to predict the unpredictable to the degree required to create a directionally-correct forecast that you can execute against and deliver customer requirements. There is no off-the-shelf solution to achieving success in predicting the unpredictable. Instead, start with a dose of common sense questions.

Common Sense Questions

From a best practice point-of-view, start building a SIOP/ S&OP process (sales, inventory & operations planning) with an emphasis on the forecast (also referred to as a demand plan). You have to start with the customer in mind.

• What is happening in your customers’ supply chains?
• Are your customers well-positioned to take volume during the supply chain chaos or are they more likely to suffer?
• What have been their historical growth rates? Will those continue or were they simply situational?
• Are your customers asking about new products and services? Are they staying up-to-speed on what’s needed to support changing requirements?
• Do you have customer agreements and/or inventory agreements? Should you change them to be tailored to the current situation?
• Is there an opportunity for joint customer visits?
• Do you have quotes? How are the trends?
• If a highly engineered product, what is in common?
• And keep thinking…..

Develop a Demand Plan

Start with whatever is known, add insights based on the common sense questions, and run the revenue forecast by key stakeholders. Do they think it sounds feasible? Don’t worry about details. Think in terms of customers or customer groups, product lines and / or markets. Do NOT get lost in spreadsheets and numbers and lose sight of the big picture. How does the result compare with expectations, competition and common sense? For most clients, start with a 12-month rolling forecast at the high level. Don’t get side tracked with the feasibility to deliver, resource requirements and inventory levels. Stick to demand. You’ll address later with the capacity side of the SIOP process.

Incorporate the Demand Plan into Monthly Review Cadence

Review your demand plan as a part of your monthly SIOP/ S&OP process. Gather inputs from Customer Service, Sales, Program Management, Product Managers, Marketing and whoever touches the customer. Continually refine the forecast from a directional point-of-view. If you are chasing pennies, don’t bother. Spend 80% of your time on the 20% of your customers and products that will drive a directionally-correct forecast on a rolling 12-month basis. You’ll have an opportunity to update the forecast monthly with exception processes built in for extenuating circumstances.

Refer to our blog for many articles on demand planning / sales forecasting. Also, read more about these types of strategies in our eBook, Future-Proofing Manufacturing & Supply Chain Post COVID-19. If you are interested in talking about what it would take to purse the demand planning and SIOP journey in your business, contact us.

Did you like this article? Continue reading on this topic:
Shortages Impacting Revenues and Forecasts

The post Creating Predictable Revenue with Demand Planning Best Practices appeared first on LMA-Consulting Group, a supply chain consulting firm.

The post Shortages Impacting Revenue & Forecasts appeared first on LMA-Consulting Group, a supply chain consulting firm.

This has been emerging as a hot topic. As clients are interested in meeting ever increasing and changing customer expectations while managing long supply chains, changing rules and regulations (including tariffs), and concerns over the cash flow implications of high inventory levels have resulted in discussion around the critical importance of demand. Do you have a handle on your demand plan over the next 12 months?

According to Gartner, every 1% improvement in forecast accuracy will result in 7% less finished goods inventory and 9% reduction in inventory obsolescence. A 1% improvement is imminently doable! Also, according to the experts, a 15% improvement in forecast accuracy will drive a 3%+ increase in pre-tax performance. Last but not least, in our experience, it is one of the best ways to drive a simultaneous improvement in customer service, cash flow and profit.

Every client we talk with says the same thing: Our sales are unpredictable. We have a custom business. We follow lean principles and produce in concert with customer demand. Or, our sales team is on top of it and are already doing everything they can to give us a heads up on demand. We don’t doubt that. However, we have also never come across a situation that couldn’t be improved. With the dramatic results that follow, it proves well-worth the effort.

Instead of brushing off the idea of focusing attention on demand, just think about what could be improved. It isn’t an exercise to beat up sales or planning. In the end, if that is what happens, there is no doubt that is part of the issue. The forecast must be collaborative with input from sales, marketing, customers, planning and anyone who interacts with customers or has input relevant to future demand. With that said, the best forecasts start with a simple statistical base. What do you do?

I’d be remiss if I didn’t point out that you should use your forecasts in your S&OP/SIOP process (sales, inventory, and operations planning) to align your demand with your supply so you can maximize your customer value and your bottom line. If you’d like to discuss your situation further, please contact us.

What bottlenecks exist in your organization?

The post Do You Know Your Demand for Your Custom Business? appeared first on LMA-Consulting Group, a supply chain consulting firm.

A Client Question

Since forecasting can deliver significant benefits with increased levels of service, inventory turnover and margin improvement, the question that inevitably arises is whether it makes sense to purchase a forecasting or demand planning system. Of course, the answer is “It depends”. In this client situation, goods were manufactured in Mexico and purchased from Asia, and key customers were large retail outlets. Demand seemed to change daily yet lead times were in the months if the ‘right’ stock wasn’t in the ‘right’ place at the ‘right’ time. Of course, they could cover some small changes by adding freight costs but that isn’t a recipe for profit. Improving the forecast would improve their success. Thus, the question turned to whether a system would have a ROI.

The Answer

In their case, they could achieve a rapid return on investment by using a forecasting system. However, let me say upfront that more often than not, I do not recommend a system. It completely depends on whether it will drive the appropriate level of improvement and associated results or not. In this case, we could easily drive dramatic forecast accuracy improvement since we started out at such a low level of accuracy due to the business environment, industry and key customers. The people understood the importance of the providing forecast feedback and although the key customers didn’t have “good” forecasts to provide, they could provide data we could analyze. In these types of situations, we are able to reduce inventory by a minimum of 20%; however, results can be far greater.

Food For Thought

Although forecasting systems can be a great idea to drive service, inventory and margin improvement, they do not always provide a return. Take a step back to understand your industry from a forecasting point-of-view. Is demand constantly changing? Are you supporting small numbers of customer/ location points with less than 25 items or is it 100 fold? Are you able to gain key customer input and/or point-of-sale data? Do you have anyone familiar with demand planning and forecasting to be able to make sense of what a system is telling you? And, last but definitely not least, have you found the appropriate scale for your forecasting system? Trying to kill a fly with an assault rifle is overkill. If you are interested in running your situation by us, contact us.

The post Is there an ROI on a Forecasting System? appeared first on LMA-Consulting Group, a supply chain consulting firm.

According to Gartner statistics, significant bottom line results can occur with just a 1% improvement in forecast accuracy. In fact, there are staggering improvements in lead time, inventory reduction and margins, so why not at least explore the idea? Yet, there are lots of worries expressed by clients and contacts:

• We cannot predict what our customers will order!
• Customers don’t even know what they will order! (And, in seeing these ordering patterns, I concur that this is often-times an accurate statement.)
• Since we are using lean, our lean consultant told us we no longer need forecasts.
• We are a small company and don’t have resources to focus on forecasting
• And my favorite, “Why in the world would our significant sales team listen to you?”

I just have one question, if depending on the industry and study, a 1% improvement can lead to a 2.7% to 7% improvement in cash flow and minimally a few percentage points cost improvement in key categories such as freight, wouldn’t you be remiss if you didn’t consider your forecasting process? Of course you would be!

We have yet to run across a client that couldn’t improve the forecast, no matter how daunting the task seemed. Since the outcomes are substantial, it was worth the effort, and the effort was typically minimal in comparison to aligning the people on the forecast. A few tricks of the trade in driving results with forecasting:

1. Let your tool (whether Excel or a sophisticated system) do the work for you – From an 80/20 standpoint, there is no doubt that a simple tool will perform far better than even your best person. Develop your base.
2. Focus on exceptions – On the other hand, your team is best equipped to provide insights and feedback on exceptions. Use their strengths.
3. Drive results; not blame – Remember, the definition of a forecast is that it will be inaccurate. I’ve yet to run into a client with a perfect forecast. With that said, the three most impressive were across the board – a $100 million dollar facility of a multi-billion dollar aerospace organization with a manually generated forecast, a close to billion dollar consumer products company with a home grown system and smart people, and a rapidly growing <$10 million dollar manufacturer with an Excel-based system with smart, agile and process-oriented people. None of these folks ran around blaming anyone with forecast inaccuracy yet they all outperformed their competitors.

Perhaps it’s time to take a second look at your sales forecasting process. Who is responsible? How does it work? You never know what you’ll discover as you shine a flashlight on the process. If you’d like to discuss forecasting and demand planning further, contact us.

The post Is Demand Planning/ Sales Forecasting Hype or Valuable? appeared first on LMA-Consulting Group, a supply chain consulting firm.