Three Certainties in Life: Death, Taxes, and the Forecast is Wrong!

This year, it looks like it may be compounded by an earlier than expected uptick in underlying demand across most high tech sectors. According to Gartner’s recently revised report, semiconductor revenues are expected to grow 13 percent in 2010, back to 2008 levels. For those unable to respond to this increased demand, the lost revenues will be felt across the board room, by supply chain execs, shareholders and customers alike. Supply chains that have been “leaned” down by many companies over the last year or more are already feeling the pinch; anyone trying to chase down factory-allocated TI parts right now can attest to that! So why is it so hard to forecast accurately? - Upturns and downturns are difficult to predict; today we’re feeling (or just about to feel) the impact of an upturn in the economy. - Seasonal and other cyclical effects affect consumer products in particular. - New product introductions and product variety make it incredibly hard to predict success at the product mix level. Throw all these factors in with process challenges across outsourced supply chains, and you’ve got a real mess. While we’re actually pretty good at forecasting at the revenue level across the board (a function of the need to report to the street accurately, I believe), even the leanest and most efficient supply chains find it difficult to forecast at the product mix (SKU) level; so while one product line is experiencing shortages another is suffering from excess and obsolete material. This holds true whether in an economic downturn or uptick. Over the years we have seen a vast amount of effort and money spent on trying to perfect forecasting demand. Many sophisticated tools have been developed to tackle the challenge, to great effect—yet the problem still exists. The core of the challenge is that predicting demand is just downright impossible to do; as a result, we will always be faced with imbalances across the supply chain. The key of course is how we respond to these imbalances—how we adapt and recover, and how we do things better in the future. ----- Author: Chris Cookson is vice president, supply chain and operations at Verical