Caught in a Perfect Storm, SmartForecasts Helps Rev-A-Shelf Weather the Crisis

The Smart Forecaster

Pursuing best practices in demand planning, forecasting and inventory optimization

Does your extended supply chain suffer from extreme seasonal variability? Does this situation challenge your ability to meet service level commitments to your customers? I have grappled with this at Rev-A-Shelf, addressing unusual conditions created by Chinese New Year and other global events, and would like to share the experience and a few things I learned along the way.

First, let me explain our situation. We import 60% of the parts we use to build our kitchen and bath accessories from China and Europe. Most of the year we were able to plan our inventory needs using a spreadsheet-based min/max approach. But not during Chinese New Year, which drives the planet’s greatest annual population migration. Chinese New Year shuts down production for up to two months, creating significant supply risk as we strive to meet our three day order fulfillment commitment.

We solved our problem, introducing statistical demand forecasting with the flexibility to extend lead times when necessary, the ability to reliably establish safety stocks that achieve our required service levels and a continuous reporting system that lets everyone know exactly where we stand. However, success required much more than a new piece of software. We needed to change the way we view future demand, supply risk and safety stock. Here are a few key things we did that made all the difference.

Stakeholder education and buy-in

Regardless of the project, it’s always best to enlist the buy-in of all stakeholders. We knew we had to do something to solve our problem, but there was bound to be resistance. Senior managers, for example, had developed a healthy distrust of software and wondered whether demand forecasting software could help. Our buyers had developed their own perspectives and procurement methods, and felt personally at risk as we considered new approaches.

People came around as they developed a common understanding of the problem and how we would address it. Education was a big part of the solution. We explained how forecasting works and key factors we should all understand: how to analyze trends, how to use “what if” scenarios, impact of shifting lead times, how to relate service levels to supply risk and safety stock and key performance indicators like inventory turns. Going through this process together, we all became stakeholders in the solution.

Use the Right software

When you have lots of part numbers and any sort of supply or demand variability, you just cannot forecast effectively with a spreadsheet. With our min/max forecasting system, we were planning to an average, and it wasn’t working. Average usage has inherent flaws for planning purposes—it’s always looking backward!

You need software that looks ahead, recognizes seasonal patterns and enables you to determine how much stock you’ll need to meet required service levels over varying lead times.

Fine-tune processes

When the old ways don’t work, you need to be open to adjusting your assumptions. Think less about where you’ve been, and more about where you want to be. Take a look at your lead times and plan to your desired service level. Last year’s history may not be the best predictor of this year’s demand. The same forecast horizon may not be appropriate for all products or certain time of the year.

Make the Forecast Actionable

It’s not enough to produce an accurate forecast and estimated inventory stocking levels. You’ve got to develop a way to make the information actionable for those tasked with using it. We developed a set of reports that enabled buyers to leverage better forecast and safety stock information. Now, at the end of every month, we produce a forecast report that provides a clear picture of current inventory, safety stock, past usage, forecasted usage, incoming deliveries (PO’s) and recommended order quantities.

Validate Results

You can, and we did, test our new methods against our own demand history. Still, an authoritative outsider can make acceptance easier. We commissioned a study by a professor at Louisville University’s College of Business who set one of her graduate students to the task. Through them we were able to reinforce what we saw happening from our results, and feel comfortable that we were on a good path.

All of these factors helped Rev-A-Shelf transform its demand planning process, to great effect. Today we are exceeding our service level targets, and our fill rate, based on a three day ship cycle, is showing steady improvement, and trending up. Overall, units-in-stock have stayed flat while supporting a 13% increase in sales.

John Engelhardt is currently Director of Purchasing and Asian Operations for Rev-a-Shelf, LLC in Louisville, KY. He has held a variety of management positions both in private business and public organizations. At Rev-A-Shelf he held the position of International Sales Manager and Director of Sales Support before assuming his current position. He can be reached at johne at rev-a-shelf dot com.

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Caught in a Perfect Storm, SmartForecasts Helps Rev-A-Shelf Weather the Crisis

Does your extended supply chain suffer from extreme seasonal variability? Does this situation challenge your ability to meet service level commitments to your customers? I have grappled with this at Rev-A-Shelf, addressing unusual conditions created by Chinese New Year and other global events, and would like to share the experience and a few things I learned along the way.

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Forum Energy Streamlines Demand Planning, Improves Market Responsiveness with SmartForecasts

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.”