Three Certainties in Life: Death, Taxes, and the Forecast is Wrong November 19, 2009 No Comments

We all know demand variability and predictability are a daily reality for high tech manufacturers. The up-coming holiday season brings its own challenges for the manufacturers of consumer electronics. This year, it looks like it may be compounded by an earlier than expected uptick in underlying demand across most high tech sectors. Just this Monday Suzanne Deffree of EDN commented on Gartner’s revised report saying that semiconductor revenues would grow 13% in 2010, back to 2008 levels

For those unable to respond to this increased demand, the lost revenues will be felt across the board room, by supply chain execs, shareholders and customers alike. Supply chains that have been “leaned” down by many companies over the last year or more are already feeling the pinch; anyone trying to chase down factory-allocated TI parts right now can attest to that!

So why is it so hard to forecast accurately?

Upturns and downturns are difficult to predict; today we’re feeling (or just about to feel) the impact of an upturn in the economy
Seasonal and other cyclical effects affect consumer products in particular;
New product introductions and product variety make it incredibly hard to predict success at the product mix level.

Throw all these factors in with process challenges across outsourced supply chains and you’ve got a real mess.

While we’re actually pretty good at forecasting at the revenue level across the board (a function of the need to report to the street accurately I believe) even the leanest and most efficient supply chains find it difficult to forecast at the product mix (SKU) level, so while one product line is experiencing shortages another is suffering from excess and obsolete material. This holds true whether in an economic downturn or up tick.

Over the years we have seen a vast amount of effort and money spent on trying to perfect forecasting demand. Many sophisticated tools have been developed to tackle the challenge, to great effect- yet the problem still exists. The core of the challenge is that predicting demand is just downright impossible to do; as a result we will always be faced with imbalances across the supply chain. The key of course is how we respond to these imbalances, how do we adapt and recover, how can we do things better in the future?

My focus in the next few posts is to share with you some lessons learned on how to manage to this reality. This includes topics such as:

1. Black Friday, Cyber Monday and the Economy – What’s the real demand?
2. Supply chain ups and downs – examples of what can go wrong, measuring the impact and what have we learned from past examples
3. Respond and react- a deeper look into how a leading OEM took a write off that changed the market
4. Inventory as an asset, why in many cases having more is better than having less
5. How innovators are utilizing inventory as a strategic weapon and leveraging new tools as “safety valve” to relieve the pressure of excess
6. Key tips on how to get the most out of those inevitable excess inventories in the new electronics landscape.

Let us know what you think and stay tuned!