Lead Article:

Adaptive Planning

As we have learned in the past on every Valentine's Day, there is a correlation between love, flowers and candy. Candy makers and chocolatiers have a relatively easy task to boost production since this is a predictable event. They have an adequate amount of causal data that they can use in order to predict how much to produce and where to send it based on demography, region and past demand. However what is more challenging is when you are dealing with the unknown events, such as snow storm, or new products with no history. If a new chocolate is introduced at a certain price level, how do you make any predictions as to how much to produce and at what price?

Almost all companies run into these issues with their new products. Even more challenging is for high tech companies with short product life cycle products. Their challenge is to be able to properly determine the ramp up in production and decide on the demand and pricing. Airlines seem to do this well by adjusting the prices to change demand for a given inventory. However, their Achilles' heel is the fact that they are given a fixed inventory and if they don't use it they will lose it!  Manufacturing entities have the luxury of controlling inventory as well as the price in order to avoid shortages or excess levels of inventory. Having the ability to control is a good thing but how to do it is a combination of art and science.  Demand Planning systems provide valuable information and algorithms to address these issues and create a collaboration environment where art and science as well as intuition and experience converge to determine what the optimal levels of inventory and price should be for various regions and end users. In the absence of such predictive algorithms there is a real risk of both creating shortages and losing market share and of course revenue at high margins or even worse creating too much inventory that will tie up capital sitting at warehouses and distribution centers. A comprehensive demand planning and supply strategy, and Sales and Operation Planning process, allows fairly accurate demand planning combined with inventory and supply planning. This process gives suppliers better visibility into demand and prepares them to synchronize with your plans and deliver what is needed at the right time and place. We may not be able to predict the unpredictable but surely we can be better prepared when it happens. Not just in predicting the forecast but the ability to react faster in supply planning and making real-time adjustments, constantly adapting and getting better. After all this is how evolution works. A strategy that has proven itself since the beginning of time!  Hope everyone had a wonderful Valentine's Day!