Why We Struggle (continued)

Latest Software Still Has Inherent Flaws

Many of the recent advancements in software such as Enterprise Requirements Planning (ERP), advance planning, inventory optimization, or collaborative planning and forecasting are not giving the advances as expected. While they create new methods of sharing cross-company data and have the ability to analyze mountains of data and scenarios using very sophisticated algorithms, they still require an accurate forecast by SKU and time period. Since forecasts are inherently wrong at this level and many of our same coping actions exist, the level of benefit has been marginal. Some companies report great results, but the majority see little or no improvement. 

The Way Out is to Replace Continuous Forecasting

Forecasts have their place and value. They are excellent for predicting a starting position or predicting what may happen in aggregate. However, they fall apart at determining what will happen by SKU at each order cycle. This is why there is constant effort to compensate with so many actions and so much software. But no amount of software or changes in behavior corrects the fundamental problem: no one can continuously predict at the SKU level what customers will do. And, unless there is a solution for this fundamental problem, no significant improvement is possible.

The answer requires accepting a significant paradigm shift. Instead of trying to forecast and push quantities in advance, the process needs to be reversed. Replenishments are pulled after the sale and based on what was actually sold. This method is called demand- or pull-based replenishment.