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How to create a reliable supply chain with effective forecasting and inventory management

How to create a reliable supply chain with effective forecasting and inventory management- SYSRO ERP Blog

Ask manufacturing leaders what changes they plan to make in the next three years in the wake of the coronavirus pandemic, and they will likely say their use of technology will deepen as more and more players in their supply chains come to rely on digital connections for daily interactions.

It is a realization most manufacturers came by as they faced profound shocks brought on by the pandemic. Yet, far from being the only culprit, COVID-19 exposed pre-existing cracks in the supply chain. From the accelerated pace of technological change to the constant shift in global business dynamics, we have observed major constraints across the following areas:

1. Lack of global resilience: The global impact from these shocks has led to protectionist policies on certain goods and services as countries seek to conserve goods for their own consumption. Owing to differing regional interests, export disputes are not being resolved in a timely manner.

2. Material scarcity:​ While materials shortages are not new, they were exacerbated by the surge in demand once pandemic-induced lockdowns blocked off primary avenues for raw materials. Reliance on too few primary suppliers for critical components and materials has compounded the problem even further with unexpected ripple effects on downstream manufacturing as evidenced by the still ongoing global computer chip shortages.

3. Talent gaps: ​Despite record layoffs in many industries, Canadian manufacturers face a skills shortage in key positions in operations and across the supply chain. One of the key drivers is the aging workforce leaving for retirement. Adequate cross training is not occurring fast enough to fill the gap.

4. Changing consumer attitudes:​ The experience of living through COVID-19 changed both our expectations and behaviour. For one, the e-commerce sector responded rapidly to the pandemic by creating seamless online experiences. Investments in logistics and supply chains would potentially support wider product ranges, foster time savings and attract larger numbers of customers. Yet, due to inadequate physical and digital infrastructure, many manufacturers lacked the flexibility they needed to take advantage of accelerated demand and were unable to optimize fulfillment.

5. Legacy systems:​ Many companies discovered that their legacy systems could not keep up with or could not be modified to accommodate change. The pandemic uncovered key vulnerabilities in reaction times and agility by exposing gaps between plans and their execution due to lack of end-to-end visibility of operations.

6. More costly operations:​ All of the above pressures culminate in rising operational costs – from ​labor, materials and warehousing, to IT, freight and safety. Forced to implement protective measures through the pandemic, some companies increased overhead by stock piling inventory which negatively affects both cash flow and profits.

A Better Way to Forecast

All of these factors exert enormous influence over manufacturing operations and their supply chains. Rather than enforce survival and stopgap measures going forward, manufacturers are seeking out measures to ensure continuity and dependability in their supply chains.

Manufacturers can use forecasting to support inventory optimization. Gone are the days where you solely had to rely on your sales team creating wishful thinking forecasts.

An enterprise resource planning (ERP) system can automate and provide a systematic approach to creating a forecast from historical data. It provides the facility to analyze forecasting errors, share data between departments such as procurement, identify sales trends and seasonality. You can even use comparable existing product history as a starting point to model a forecast for a new product. Other related tools such as Pareto analysis identify which products are most profitable and hence those you should focus your attention on.

Managing Inventory

Manufacturers know that good supplier relationships are critical. Charged with this critical task, the purchasing department can leverage its Material Requirements Plan (MRP) to stay abreast of what’s needed, how much and when.

MRP looks at the variables that create demand in your system, such as sales orders, forecasts, quotes and supply, including inventory of raw materials and finished goods, outstanding purchase orders as well as production jobs. MRP runs this information through a series of algorithms and then makes suggested recommendations for what to buy, how much, when and from which supplier. Future time parameters can be set and the recommendations can then be shared with suppliers as a form of forecasting your intentions to purchase.

Suppliers can then use your forecast to refine their own production and procurement plans. Providing them with an accurate forecast ensures not only your intention to purchase but also provides the right details to secure the best pricing and terms.

Stay Agile, Get Ahead

Designed to give you a holistic view of an enterprise, ERP systems will assist you in managing your data and gaining insights into your business. The full benefits of an ERP are realized when the system is leveraged across all departments:

  • Production is able to map out longer running production jobs, which will translate into higher throughput, fewer changeovers and lower overtime.
  • Sales is more efficient when it can effectively set achievable sales targets and spend more time generating revenue.
  • Finance can more effectively analyze profitability by examining how costs can be reduced when the business carries less inventory or by optimizing shipping, for example.
  • Purchasing will use forecasting to organize the Purchasing Orders (PO) system, which enhances its negotiating power when dealing with suppliers.

Resilient companies have no choice but to get ahead of the twin challenges of technological change and shifting global dynamics. Armed with the right ERP tool, manufacturing companies have the upper hand in identifying trends early, adapting processes, re-configuring supply chains and collaborating with new trading partners. Companies that can use these tools effectively will be engineered for speed and agility and have the upper hand at influencing their future.

Click here to learn more about SYSPRO’s MRP solutions and how to plan and manage uncertainty.

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