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Demand Forecasting
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Lean Manufacturing Articles

UNDERSTANDING YOUR CUSTOMERS

Whenever you look at demand history and a forecast, you need to know how customer actions impacted the history or may do so in the forecast period. Certainly, understanding when, what, and how much they are pro­moting product that yours may be a component of is important and the same is true if you are a finished goods supplier.

Gains and losses of accounts also can cause severe trend inflation that you need to dampen. If you have the option and a willing IS department, the most accu­rate way to deal with either is to remove the demand history for the account. If it's lost business, then you've now got a good starring point for what the continuing business will look like. If it's new business, it's more ac­curate to forecast the old and new business separately and then add the forecasts together. This will also elimi­nate the possibility of bogus trends.

 

But there's so much more to consider. Could a change in ownership cause them to change suppliers or shift demand considerably if there are substantial changes to their marketing? Has there been a personnel change with a preference for one of your competitors or your firm? And if you produce components for a customer that is switching from traditional to Just-in-Time manu­facturing, your demand will certainly look much differ­ent in the future than it did in history as lot sizes shrink and the pattern will be more closely fitted to sales of their finished goods.

UNDERSTANDING YOUR COMPETITION

 

   Also consider any impact that your competition either had on historical data or may have in the forecast pe­riod. Was there a strike last year that sent more busi­ness your way? If so, I'll bet that new contract lasts for more than one year, and you'd better consider whether you've actually gained that market share permanently, or if the effect was temporary.

You must consider their marketing efforts. Have they or will they go after your products or a non-competing line? Have they made acquisitions that will leave them strapped for cash, so will promote less, and grow your share, or did they buy new market share that will put them in an even better position to eat into your base?

And it's not just their promotion efforts. It's even harder to get your arms around a change in how they go to market, such as deciding to become the price leader, a service standout, or changes to the variety or breadth of product offered. You must understand how your company will respond or not respond and how that would impact your future. For instance, if the competi­tion decided to compete on service and your company decided to combat with price, the one certainty is that you'll need to forecast more units to make up the same revenue. Or if your company decides not to respond, consider that your growth trend may dampen or decay.

To Be Continued

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

Lean Manufacturing Articles and click on Series 15


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