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-  Safety stock/inventory, at finished goods, interme­
diate, or raw material levels, to optimize flexibility
to respond to demand shifts while minimizing in­
ventory investment. The shorter the lead times, and
the more flexible the manufacturing process, the
easier it will be to hold the inventories earlier in the
cycle (raw materials or at the suppliers), thus keep­
ing it in its most flexible form, not having commit­
ted it to any particular form or use until absolutely

-  Involve all supply chain and demand chain part­
ners in the planning process so as to deal with the
impact that variation has on them. Ensure that inte­
grated, non-redundant strategies are implemented as
to where and how much inventory or capacity should
be held or planned for, to accommodate the expected
variation. By involving demand chain partners, non-
critical lot sizing or timing issues that trigger demand
variations can be minimized once they understand
their impact and the potential cost. By mutually
aligning requirements with schedules well in advance,
the last-minute variations can be minimized and thus
accommodated more easily.

Establish Reasonable Expectations: Analyze past
demand patterns and past forecast accuracy. Identify
which product groups and individual products are likely
to have the most variation. Establish reasonable accu­
racy improvement targets based on actual variations and
past experience. By planning to accommodate for the
items with the most variation, there will be less busi­
ness impact and emotional reaction to the variations
when they occur. This also fosters a positive environ­
ment of continuous improvement, where reasonable
improvement of accuracy is targeted.


To support these solutions, some underlying
must be addressed. They include the following:

  Better information: This includes considering in­
dependent market surveys and market intelligence ser­
vices, as well as individual communications with all
demand chain partners. In its most sophisticated form,
it could involve direct linkage between demand chain
and supply chain partners such that the supplier no
longer needs to forecast the demand from their custom­
ers, but rather the customers directly pass on their
planned demands to their suppliers, updated weekly or
monthly, as a result of their own forecasting and plan­
ning processes. This data can be communicated via com­
mon planning networks or fairly easily integrated by
passing item/quantity/timing information from one
planning system to another, in standard formats. But
the sharing of updated data does not replace the need
for appropriate analysis, review, and discussion of the
changes between all supply chain partners.

  Improved analytical tools: Critical here is the abil­
ity to analyze variation and identify by exception those
products or families that need the most attention. The
tools need to be flexible, so that changing situations can
be accommodated and the data analyzed in various ways
until the true root cause of errors are identified.


The use of demand filters at order entry to high­
light individual customer orders that fall outside of
normal ordering patterns is recommended.

The use of tracking signals or tolerances to facilitate
the review of actual sales vs. forecasts on a periodic
basis can help prioritize forecast error based on the
amount the error varies from the normal "expected"
or "historical" amount of error for a given item.

Being able to aggregate or disaggregate the data and
sort it by various factors (for example, by error as a
percent of normal expected error, cumulative varia­
tion over a select period of time, etc.) and then to
display it in graphical form will help the analyst not
only get to the root problems, but present them in a
way easily understandable to management.

Only forecast what you have to: There may be many
low-volume, infrequently ordered items for which at­
tempting to maintain a rolling weekly or monthly fore­
cast is a hopeless and useless task. Find other ways to

deal with these items either by safety stocking them, or
increasing their customer lead time and making them
make-to-order items.

-  As manufacturing cycle times are lowered as com­
pared to the customer lead times, and as manufac­
turing flexibility is increased, some product lines may
require forecasting only at the aggregate, family, or
product group level. This will allow for the planning
of common capacity and raw materials, while man­
aging the mix variations in the short term by sched­
ule changes and/or selective raw material planning

Breaking the forecast down into weekly increments
in the short term is necessary in a make-to-stock,
multiple warehouse environment. However, several
months out, forecasting only in monthly totals and
then perhaps even in quarterly totals may be enough
to do the manufacturing and supplier capacity plan­
ning that is needed beyond the cumulative supply
chain lead time. The total horizon must be main­
tained far enough out to be able to be reconciled to
financial and business plans, as well as to identify
the impact of seasonal, cyclical, and trend projections.

To Be Continued

For balance of this article, click on the below link:

Lean Manufacturing Articles and click on Series 12


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