Forecasting, lead times and communication are tools distributors use to help get and provide superior service in rapidly changing markets, but they are not perfect.
The famed sports psychologist/author Dr. Bob Rotella wrote the book, Golf Is Not a Game of Perfect. He was right. It’s safe to say that golfers don’t hit a perfect shot every time they swing the club, but they aim to play the best round possible as measured by their score (the lower the better in golf). A few keys to shooting low scores on the golf course are to minimize the really bad mistakes, hit each shot with a clear mind and a specific target, and to try to sink every putt no matter the distance. Likewise, when it comes to successful supply chain management, “Supply Chain Is Not a Game of Perfect,” and similar aims apply in order to provide the best possible service to the customer.
In the Middle
As authorized distributors, we live our lives “in the middle.” We are a conduit for our authorized suppliers to get their products to the consumer. Maybe we like being tossed around like cats in a Steve Martin skit. I joke, but we value our position and strive to provide superior service 100 percent of the time.
The challenge is that we live in a time of global products and markets. Markets today react to slight changes, in either supply or demand, more rapidly than ever. Authorized distribution plays an invaluable role in seamlessly supporting customer needs in the ever-changing sea of supply and demand. A key value proposition we provide as an authorized distributor is to make sense of all this rapidly changing, and sometimes conflicting, information and to somehow smooth it out so our customers still get great service.
To help us do that, we have a series of proven processes. Our forecasting tools are better, and in general, manufacturers, distributors and end customers communicate more effectively than ever. So, why can’t we all have a 100 percent service level all of the time for every customer? Let’s take a look at the hiccups of forecasting, lead times, and communication.
Forecasting: What’s the Weather Like Today?
It would be useless to check the weather forecast for a big event happening six, three, or even one month from now. Why? Because the weather changes daily, and many times even quicker than that—as evidenced by the week leading up to the most recent Super Bowl in our backyard here in North Texas.
As you can imagine with this rapidly changing market, predicting inventory is challenging for the whole supply chain. As an authorized distributor, it is our job to work with both the manufacturer and the customer to deliver the quantity of needed products. To determine our inventory levels, we attempt to forecast customer needs.
We’ve all had forecasts change on us. Depending on the economic climate, it’s either, “I know I ordered 100 pieces, but now I need 1,000,” or “I know I ordered 100 pieces, but now that’s 10 year’s worth of product, and I don’t want them.”
Forecasting is at best an approximation and at worst an utter disaster. I would argue that for most of us, a forecast longer than 90 days is just a guess - maybe an educated guess if you’re really good.
To compensate for ever-changing demand profiles, supply chain planners need flexible forecasting tools that allow them to stratify SKUs beyond the traditional ABC Pareto methodology. As an authorized distributor, we have to be diligent in identifying our customer’s critical products, stratify them into higher service classes, and utilize optimization tools to ensure on-time delivery.
Fluctuating Lead Times
Fluctuating lead times also prevent us from living in 100 percent service level utopia.
Last year, a supplier told me his lead times were 149 weeks! Really? That’s almost 3 years. Why not just say, “We don’t have a clue when we can ship this stuff to you.”
What caused this extensive lead time? Lead times are greatly dependent on production and raw material availability. During the recent recession, many manufacturers of component parts reduced global capacity. When demand returned with a vengeance in 2010, many manufacturers were slow to bring capacity back online - resulting in exponential lead time increases. Raw material shortages can and do play a part as well. For example, this past year, we saw just about anything “tantalum related” experience drastic lead time extensions, and in many cases, allocation strategies were necessary.
Due to global competition and a host of other economic pressures, it is no longer acceptable for authorized distributors to merely respond to lead time step changes that result in “stock-outs.” It is imperative that distributors and manufacturers alike make the proper investments in business intelligence technologies that allow them to predict, and respond to, changing delivery performance. Predictive technologies now allow supply chain planners to detect lead time changes early enough to take appropriate measures to protect service delivery and prevent excess stock build-up in the supply chain.
The good news is that it appears we’re now over the hump. Most lead times are actually shrinking instead of expanding.
Reactive Communication: What? You Didn’t Get the Update?
Distributors are in unique positions to experience both the good and bad of modern communication. The preferred method of communication these days is generally electronic, be it EDI, email, or a web-based portal where information is deposited for us to “go get.” These methods are great, but sometimes updated or new information can get lost. As a result, our communications can be reactive instead of proactive. It appears to be a “CYA” mentality versus one where world-class customer service is the goal.
Here’s a common scenario we encounter as a distributor:
Supplier: “Hey, we changed our electronic price file to show that our lead times went from 16 to 32 weeks. Didn’t you see it?”
Our Answer: “No, not until we went to expedite the parts that weren’t there on time.”
As our product portfolio continues to expand to offer more products, our reliance on electronic communication will inherently increase. While necessary due to the sheer volume of order data being transmitted, authorized distributors need exception management processes that allow customer and sales support representatives to easily detect and address unacknowledged orders and other dropped communications that lead to customer frustration, low service delivery, and ultimately, lost market share.
A Good Round
Forecasting, lead times and communication are tools distributors use to help get and provide superior service in rapidly changing markets, but they are not perfect. Just like the keys to “not a game of perfect” for golf, the keys to supply chain management are to minimize the really bad mistakes, work with each supplier and customer (focused on clear goals and targets), and communicate proactively before hazards come into play. We may not get it right 100 percent of the time, but 100 percent of the time we aim to get it right. And that’s a good round.
Scott McLendon is Vice President of Product Management and Marketing at Allied Electronics, Inc. Based in Fort Worth, Texas, Allied Electronics is a small order, high service level distributor of electronic components and electromechanical products with over 50 sales offices across the United States and in Canada. For more information, visit www.alliedelec.com.