Still using the supply chain F-word? Here's why you should stop

Hein Pretorius

This specific F-word to is “forecasting”. According to Pretorius, reliance on forecasting prevents businesses from adopting more powerful approaches to supply chain management. “It’s a system based on guesswork, regardless of how educated the guess is,” he says. “It’s also the reason so many companies lack the agility they need to compete at a global level.”

Update planning approach for better supply chains

Pretorius reports that several advanced systems for efficiently managing the supply chain have arisen over the years, one of the newest being DDMRP – Demand Driven Materials Resource Planning. “I’m not an evangelist of any one approach,” Pretorius admits. “But I’m a proponent of demand-driven methods because they free companies from rigid forecasting assumptions and empower them to respond to market needs as they occur.”

He insists that basing one’s output on previous sales and variables like seasonality is archaic in today’s connected landscape. “The technology exists to determine replenishment in real-time with a high level of confidence.” In the demand-based world, each purchase by an end consumer is a pull signal to downstream vendors and manufacturers, with no need for forecasting at all. All it takes to achieve the right level of visibility is sufficient integration.

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Think nationally

However, says Pretorius, companies need to lift their game above managing their isolated supply chains. “If you aspire to become a force in the global economy, you must consider the supply chain not at a corporate level, but at a national one.” That means being open to developing a unified platform by which retail demand can be consolidated and shared with vendors throughout the supply chain. They could then efficiently determine their output based on reality instead of forecasted consumption.

Some companies may see this as problematic because it suggests consolidating their data with that of competitors and possibly exposing their strategies. “Nothing could be further from the truth,” assures Pretorius. “These days, encrypting and anonymising data is a trivial exercise. Companies can easily collaborate to promote efficiency in the national supply chain without jeopardising their competitive advantage.”

Develop a new mindset

Pretorius explains that it’s not a lack of technology that prevents such a system from being developed. Rather, it requires a collaborative mindset, and that means a willingness to work together in a spirit of trust. “We need to build a social supply chain, to start integrating systems and sharing information, not just inside our organisations, but across the board.”

“The fact is,” he continues, “if we don’t look after our effectiveness as a country, it won’t be long before our internal supply chains start to suffer. So my warning to South African companies is that it’s time to wake up to the reality that the days of forecasting and hoping for the best are over.”