What Is Collaborative Forecasting and Why Supply Chains Need It
- Traditional ways of forecasting demand have fallen apart in today’s uncertain business environment
- What's needed to accurately predict demand is collaboration among supply chain partners in real time
- Forecast collaboration enables operation with minimum inventory and reduces operating costs
Increasing complexity of supply chains has also multiplied operational and inventory-related challenges for businesses.
A complex and global supply chain involves thousands of suppliers that largely act independently. And the lack of visibility into their operations often leads to a mismatch between supply and demand.
It can result in inventory stockouts or leave a business incapable of meeting sudden spikes in demand. It can also increase operating costs as businesses tend to store surplus inventory and safety stocks.
The Big Data Problem
Among other things, this complexity also generates huge volumes of data at various points of the supply chain.
However, it is extremely difficult to integrate the data across different sources, partners, and locations. That’s because all stakeholders — suppliers, production facilities, logistics partners, wholesalers and retailers — have their own data and ERP systems.
Each stakeholder has its version of the truth that is largely disconnected with external data.
This lack of data integration leaves an organization susceptible to breakdowns, cost fluctuations and demand volatility.
There is no single source of data that can connect multiple stakeholders such as planning and sourcing.
The Need for Collaborative Forecasting
Today’s uncertain business environment has made it imperative for supply chain partners to collaborate in real time to balance supply and demand and ensure timely delivery.
The objective of collaboration is to combine the intelligence of multiple stakeholders and trading partners in the planning and fulfilment of customer demand.
Collaborative forecasting or forecast collaboration makes use of available information and latest technology to force a shift from independent, forecasted demand to dependent, predictable demand.
This essentially implies real-time information sharing about demand among supply chain partners. It also helps prevent a situation where a business finds itself incapable of meeting an unexpected surge in demand due to lack of prior cues.
Making Supply Chain Management Proactive
Due to the growing uncertainty as a result of the COVID-19 pandemic, the focus of supply chain professionals has shifted from reactive to proactive decision-making.
Bala Balakumar, supply chain management product lead at GEP, explains in this report: “In the past, supply chain management systems have been reactive -- collecting data and transmitting it to a user who has to make decisions. That means companies are dependent on people with a lot of knowledge in managing their supply chains. But the supply chain is so vast, with so many interconnected pieces, that there is no way for an individual to envision all the moving pieces and to predict problems.”
How Do You Enable Collaborative Forecasting?
To effectively manage the extended supply network and make accurate forecasts, it is imperative to have end-to-end visibility.
This is possible by leveraging advanced analytics to derive insights from huge volumes of raw data.
Modern demand planning and forecasting software use analytics and real-time insights to enable companies to react quickly and streamline sourcing and production planning.
Another key element to join the missing dots in the supply chain is collaboration. Collaboration in real time allows stakeholders to share information quickly and ensure timely delivery. It also enables supply chain partners to participate in ‘what-if’ scenario planning and resolve demand or supply issues.
With what-if planning, stakeholders can simulate forecast changes in real time and proactively plan for a spectrum of possible demand situations.
Collaboration also enhances exception management capabilities by providing real-time alerts about forecast changes or forecast commit mismatch.
Capabilities of Collaboration Platforms
Collaborative forecasting software helps strengthen supplier partnerships and enables meaningful information-sharing. It lets stakeholders access real-time updates and sense subtle changes in demand to allow for proactive decision-making.
Here are some key capabilities of such platforms
- Provide a collaborative platform to obtain real-time supplier commits and certainty of supply
- Enable operation with minimal inventory
- Automate forecast collaboration process with all trading partners
- Reduce shipment expedites due to real-time demand supply sync
- Enable dynamic exception management for proactive issue resolution
- Enable supplier performance monitoring through KPIs and forecasts improving forecast accuracy
- Help leverage investments made in advanced planning tools
- Improve working relationship between supply chain partners
What lies ahead in the chain
During the early stages of the COVID-19 pandemic, multiple stakeholders came together to collaborate and deal effectively with supply shortages.
This united effort has been the key to resolving critical supply chain issues. Going forward, with greater levels of collaboration, forecasting capabilities are expected to evolve to a point where information about demand will be completely provided by supply chain partners.
Supply chain partners will increasingly leverage advanced technology to effectively collaborate and determine demand with precision.