Forum Energy Technologies is a $1.7 billion global oilfield products company, serving the oil and natural gas industry. With over 3,500 employees, Forum is headquartered in Houston, TX and has manufacturing and distribution facilities strategically located around the globe. Forum’s Valve Solutions Division in Stafford, Texas, uses SmartForecasts in combination with its Epicor ERP system for planning at the finished goods and component levels.
The Challenge
Forum faced a complex demand planning challenge. Its business, highly cyclical and sensitive to market changes, required a responsive planning process. This was complicated by the fact that the majority of its stocked items exhibit sporadic, seemingly unforecastable intermittent demand. This is characterized by many zero or low volume values interspersed with random spikes that are often many times larger than average demand.
Forum relied upon a cumbersome excel-based forecasting process that generated estimates of average demand but did not provide guidance on appropriate levels of stock. Determining stock levels was mostly guesswork, based on intuition. The large number of items and lack of effective tools resulted in an inefficient planning process where only a small portion of items could be reviewed on a regular basis. It was not unusual for items to be forecast once per quarter.
Given six to ten month lead times for imported items and a cyclical business climate, Forum needed to forecast more frequently in order to react faster to changing market conditions. This would require a data-driven solution that could determine appropriate stock levels to reduce stockout risk while keeping inventory at an affordable level.
The Solution
Forum Energy purchased SmartForecasts for its abilities to automatically apply appropriate forecasting methodologies to specific items, handle intermittent demand, and interface with its Epicor ERP.
SmartForecasts enabled Forum to make several changes to the way it managed its inventory:
• automate forecasting, increasing efficiency to the extent that planners could forecast products on a monthly basis and have the time and ability to review exceptions;
• forecast at both the finished goods and component levels, using SmartForecasts intermittent demand forecasting for all components;
• perform a meaningful S&OP process spanning supply chain management and sales; and,
• model different inventory policy and service level scenarios to better allocate inventory investment and react more quickly to market changes.
The Results
Like other companies in the oil and gas industry, Forum has experienced a slowdown in its business. SmartForecasts enabled Forum to quickly adjust its inventories by running what-if scenarios and evaluating the risks involved with different actions. While it has only recently started to use Smart’s “Service Level Demand Planning” methodology, according to Rod Cardenas, purchasing manager, “the service level planning method has led to productive conversations between sales and supply chain and given us a platform or common ground from which we base our discussions.”
Forum now does intermittent demand forecasting for all of its components. That capability has been an important factor in increasing confidence in forecasting results. According to Cardenas, “SmartForecasts gives us good information to work with. People are feeling comfortable with numbers, and through our S&OP process we’ve been able to create buy-in across the company.”
Over four years Forum experienced revenue growth of 15-20% per year, and was able to do so without increasing inventory. Using SmartForecasts it has also been able to increase inventory turns from 1.8 times to an estimated 3.0 times this year.
Recently Forum began a vendor-managed inventory (VMI) program for its fasteners. SmartForecasts is being used to help vendors manage their bin sizes. Shifting inventory risk to its vendors, Forum has been able to reduce in-house inventory from 700,000 units to 100,000, and is expected that it will be able to turn its in-house inventory 12 times.
“We’re just scratching the surface of taking advantage of SmartForecasts’ capabilities, added Cardenas. “There’s a lot more we can do.”
