Grandfather clocks have always been interesting for me. Big old timepieces, made what appear to be hundreds of years ago, with a slow and somehow imprecise tick-tock. Looking at the second-hand going around, it is not the precise tick of a modern digital device, the hand drops forward to the next second, then somehow rears itself backwards ready for the next lurch forward. It reminds me of the ageing ERP sales forecasting system.
Actually, my love of grandfather clocks balances with my dislike for the sales forecast. In the past, perhaps the forecast was relevant. There was very little timely communication possible through the distribution chain that was of value. The work was left to sales and marketing teams to assess the market from their perspective and then feed in the information to the ERP system, which justified its millions of dollars investment by adding up the numbers of inventory in all the various warehouses, lead-times etc., and then came up with a plan for manufacturing. It was rather more simple than people care to admit, it worked in most cases, but not all. New products were a complete marketing minefield, and end-of-life products caused a yo-yo effect of boom and bust as salesmen were fearful of the falling value of redundant stock balanced with the demand created by cut-price offers. I saw one case myself where the end of life major product line was suddenly cut short a year prematurely with the loss of hundreds of manufacturing jobs simply because the cost of the yo-yo demand effect to manufacturing caused more incremental cost than the business was worth. The company never recovered.
Coming forward today, the sales forecast is in even more trouble. Fashion and technology have started to merge. I would not be surprised to see a “Paris fashion week” for handsets in the near future. The consumer demand patterns for fashionable goods are far more random that that say for a washing machine, the type of product that most electronics products were in the past. This is a major change. Please don’t ignore it. People buy fashionable goods with preferences for colours and styles, features and functions. This is not only for hand-sets. Cars are also ordered with these options, and are available to buy on-line and at supermarkets. The key issue is that the point of sale is getting closer to the factory. The opportunities for companies to hold minimal stock between the factory and the on-line store is there, and it carries a huge cost reduction incentive. We are now therefore seeing the emergence of the demand signal directly from the point of sale to the customer at the manufacturing site. This is a big deal, it is what Lean has been telling us to do for some time now. Planning the factory to produce according to the near raw customer demand, without the huge overhead of the complex distribution chain, is a major new paradigm for most operations.
The manufacturing site then, to remain competitive going forward, needs to embrace this change as opposed to fighting it. Traditional tools and flows are only going to strain more and more, it is not going to improve. Embracing flexibility and agility, to go week by week knowing only roughly what is going to be built, and being able to optimise day by day to produce the right products at the right time and still achieve the productivity goals, is the road to success.
Is this all a surprise? No, I am sure that many people reading this will have seen this coming, some specialist areas much sooner than others and will have experienced it already. The nice thing today for those now aware of this opportunity, the tools to manage such agile and flexible environments exist already. We saw it coming too. Lean JIT materials, product portability, optimised planning with grouping, all part of the Valor suite available today, off the shelf. You can’t get this anywhere else. Keep this in mind the next time the forecast changes suddenly……