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  Manufacturing Insights   |   July, 2013
Demand Forecasting Drives Accurate Inventory Predictions
by Thomas R. Cutler

The Gartner IT Glossary explains that, "Demand forecasting applications incorporate historical and predictive customer demand information into production line and sales quotas." Sounds simple enough...not really. Matters become more complex when extending the definition to an end-to-end pull process...still trickier when sensing customer demand and synchronizing supply.

Ultriva's patent pending inventory optimization tool uncovers opportunities to reduce inventory and identify parts for transition kanban replenishment. The ability to simulate changes in supplier lead time, lot size, and safety stock, ensures that projects can be shared with other planners for viewing purposes and projects can be categorized.

Based in Cupertino, California, Ultriva has been a lean pioneer leader of industrial, automotive, healthcare, aerospace, and defense businesses to operate more effectively and collaboratively by providing real time visibility and targeted actionable intelligence into inventory and material flows. Ultriva's cloud-based platform leverages and seamlessly integrates with leading ERP and MRP systems, to deliver an end to end pull based replenishment model for 21st century enterprises such as ATK, CareFusion, Emerson, Ingersoll Rand, McKesson, Magellan, Regal Beloit, Thermo Fisher and more. Ultriva is a privately held, growing software company.

Ultriva's founder and CEO, Narayan Laksham noted, "Demand forecasting requires the ability to accurately simulate consumption and compute on-hand inventory for each day." The formula for these accurate predictions requires three variables:
  • Consumption volume for each day of the interval in the data load
  • Actual on-hand inventory for each day based on current replenishment methodology
  • Projected on-hand inventory for each day based on kanban replenishment methodology
Historical data identifies the potential inventory savings while simultaneously forecasting part shortages. Simulation highlights the potential weakness in current replenishment methodologies. Typically the Min-Max methodologies used by ERP systems with reorder points, is the primary cause of excess inventory and material shortages. Since reorder points are not maintained they tend to go out of sync leading to higher inventory on-hand.

In the supply chain, forecasts represent components and purchased parts. For those parts which are dual or multi-sourced Ultriva automatically distributes the gross requirements based on the defined percentage split for that particular part or component.

Manufacturers and Distribution centers need to visually view the gap between consumption and on hand inventory. This approach is only possible when measuring the variability of actual consumption. The inventory optimization tool allows companies to quickly determine which parts are good candidates for kanban replenishment based on potential savings and (S/X, Std Deviation/Mean) variability of consumption.

Estimating Inventory Savings

All inventory savings are not created equally. Estimated inventory savings per project can be drilled down to savings by part or by supplier. Data is loaded, the simulation is run, and estimated savings determined. Similarly, this dynamic forecasting process allows firms to compute safety stock and kanban loop sizing.

Complicating Matters

Ideally manufacturers could establish pull from customers through plants and back to the supply base. This is not practical or feasible because not all purchased parts or components can be on kanban. The percentage of kanban parts can vary based on the type of manufacturing whether using ETO (Engineered to Order), MTO (Made to Order), MTS (Made to Stock) or a hybrid. Ultriva's cloud-based supply chain planning and execution software supports manufacturing replenishment by kanban, Virtual kanban, and MRP. Irrespective of the type of replenishment trigger, buyers can communicate the gross requirements (forecasts) to suppliers in real-time providing ideal visibility and supplier collaboration.

Laksham is a big proponent for retaining manufacturing in USA. In his free time he participates in activities to promote this cause. He is a strong believer of "Manufacturing should be where the market is."

Thomas R. Cutler is the President & CEO of Fort Lauderdale, Florida-based, TR Cutler, Inc., ( Cutler is the founder of the Manufacturing Media Consortium including more than 4000 journalists, editors, and economists writing about trends in manufacturing, industry, material handling, and process improvement. Cutler is a member of the Society of Professional Journalists, Online News Association, American Society of Business Publication Editors, and Committee of Concerned Journalists, as well as author of more than 500 feature articles annually regarding the manufacturing sector. Cutler can be contacted at See More Details.

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