Sales forecasts should be pretty accurate. But they seldom are. I hear procurement teams complain about this often.
Sometimes the complaint is justified – it might be for example that the demand planning process simply isn’t working properly.
But actually, it can be really hard for a business to forecast accurately especially with NPD, promotions and against the backdrop of these uncertain times.
Products can experience wild fluctuations up and down in sales.
We can’t blame circumstances.
Procurement teams need to create the mechanism to be able to deal with these changes.
Let me introduce you to the concept of Supply Suspension:
- The sales forecast = the road
- The stock level = the level of the car
- The suspension = the mechanism to ensure the level of the car (stock) remains as level as possible over the bumpy road (actual requirements)
We need to design excellent suspension that has the flex and responsiveness to adapt to the bumpy road.
Step 1 – Define the characteristics of the product or material
Typical assessment factors you might use are:
- Uniqueness off-the-shelf to totally bespoke
- Supply options sole supply vs multi supply options
- Availability plentiful or long term shortage
- Sales trend seasonal, promotional, new product launch
- Market dynamics competitors, trade barriers
- Supply chain length and complexity of supply chain
- Production production capacity and lead times
This exercise will give you a sense of the amount of flex and responsiveness your suspension needs.
Step 2 – Brainstorm and map potential flex options
There are loads of methods to deliver supply flex – assess them against some simple criteria. This will help you have a meaningful discussion with your stakeholders and suppliers:
Step 3 – Create your suspension mechanism
With your stakeholders select the most suitable ideas to create your suspension. Show how the flex is made up in totality, which may look like something along the following lines:
In this example, you’ve committed to a fixed buy of 80%, with flex from 40% up to 160%.
You’ve now got suspension with lots of flex!
You’re in the driving seat and you can adjust your suspension depending on the terrain ahead.
Don’t wait until you’re short/long on stock! Set aside 30 mins this week to ask yourself:
- How flexible and robust is your supply suspension now?
- What additional flex levers can you trial and use?
- How can you engage your business and suppliers to implement your suspension?
About the Author
After 20 years of working across a range of businesses, Simon noticed that many procurement functions were lacking flair and not performing to their full potential.
His mission is to turbo-charge procurement and supply chain teams to unlock amazing sustainable value.
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