Lean Principles | Overview of Lean Principles |
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Page 3 of 10 The Death of ForecastingInstead of attempting to forecast demand from customers and then schedule production (and the rest of the supply chain) according to guess work about who might order what and when the order may come, the primary difference is that production does not commence until an order is received. The supply chain is connected directly to the customer. This is the most profound difference. The implications reverberate all the way along the supply chain and certainly beyond the confines of any discrete organizational boundary to suppliers, sub contractors and customers.It has been well said that the only thing you can say for sure about a forecast is that it will be wrong. Many businesses don't even bother measuring or reporting forecast accuracy. It would be too embarrassing. Others have simply given up attempting to forecast and end up producing whatever is required to occupy existing resource capacity. The result is big fat inventories right across raw, in process and finished goods. The traditional Western approach to managing the cost of inputs (labour, material, equipment, space, power etc.) was to look forward as much as a month, year or more and determine what customer demand may be in the future. This allowed Western style cost accountants and the Western style industrial engineers to postulate that longer production runs would entail less set-ups and changeovers and better productivity and capacity outcomes as people and equipment requirements could be more closely matched to the work that needed to be done. At the level of individual production 'runs' bigger was better. That's logical...right? Sydney Consulting understands that forecasting will always be essential for the purpose of periodic evaluation of demand and related resource capacities in any business at a high level. It is the use of demand forecasting to 'plan' production inputs and outputs at the level of production itself that is in question here. |