Forecast Challenge

Whenever you kick off a demand planning cycle, you may get the feeling that it’s an exercise in futility. Honestly, it is difficult to reliably predict future business, and it probably feels like consulting a crystal ball would be just as useful. Odds are variances to plan will grow wider and wider as your business progresses through the planning window.  

So what’s the purpose of forecasting if it’s always going to be wrong? To put it simply, the purpose is to determine a set of numbers to align different business units, basically saying ‘hey, this is what we are going to do.’  Having a common plan and goal creates the opportunity for people to execute on what they do well: serving your business.  To handle the demand variances along the way,  please refer to this previous post, Forecasting vs. Flexibility, to develop the operational labor capacity required to compete in today’s market.  

To hone in on the “right” number, independent parties within your business should take two different approaches to projecting out the next demand period: 1) roll-up from a bottom’s up perspective and 2) take a top-down approach.    

Roll-it-up demand planning

From a finite product family level, your demand planner should assemble a view to the next period(s) for what will be produced over the timeframe, then assemble a ‘unit and dollars’ view.  Even with a roll-up approach, you shouldn’t start your forecast with the finite parts of a component. Rather, your prediction should remain at a product family level.  Forecasting at a component level is a low-value exercise because uncertainty is not pooled at a high enough level.  To gain a better understanding of managing inventories, please read the inventory management blog post. 

Top-down Forecast Approach

At the same time, have another planner take a top-down approach and develop a demand plan from an external point-of-view, independent of your roll-up plan.  This plan should be reflective of the following drivers: company performance across the previous period(s), industry trends, economic factors, and changes in product mix.  By using external data to drive the forecast, this will reduce the company bias present in the numbers.

Combining the two approaches

Bringing these two forecasts together is the last critical step to developing a coherent, feasible forecast for your business to execute over the coming period.  Absolute precision in the forecast is not as important as accuracy, so you should follow all steps mentioned previously to ensure the forecast is not biased.  Overall, your primary goal is to have a believable forecast that the business can execute against.  

When flexible labor capacity is required to manage a demand variance, Veryable is here to help you capture peak revenue opportunities while maintaining low lead times by tapping into a reliable pool of workers you can use exactly as needed.  

Right materials on-hand?

Inventory Management

Within the walls of a manufacturing or distribution facility, lots of things can change that will drive productivity down.  It’s a constant battle to maintain throughput standards.  A big factor that influences warehouse productivity is inventory management, particularly classification and storage profile.  Our take on improving your warehouse workforce is in a previous blog post – Building a Better Workforce.

Inventory Classification

When it comes to maintaining inventory – whether input materials or finished goods – do you know if you have the right quantity in the right place?  To work towards an answer, one needs to have an understanding of how vital each item or material is to the operation.  Generally, inventory is classified into four buckets based on service level:

A – 99% service level (critical items that will shut down your facility or the customers):  always have on-hand, no more than 2% of items

B – 90% service level (high volume materials or items): 18-20% of the materials that comprise the remainder of items up to 80% of demand

C – 70% service level (medium volume materials): next 30% items or materials that comprise the next 15% of demand

D – less than 70% (low volume materials):  next 50% of items or materials that comprise the next 5% of demand

A Pareto analysis is the proper approach to classify inventory into the above buckets.  Once the items are classified, the inventory manager now knows where to focus his attention:  the critical and high volume items that are 80% of the demand.  This inventory classification will drive decision making on amount of material items on hand, cycle counting, and storage position within the facility.

Storage Profile

The last people to know product changes are coming are usually the warehouse operations team.  This information is critical for the team to keep the warehouse at performance standards.  As the product mix changes, the impact will affect storage density and layout – two key factors of inventory management.  Storage density will decrease if the new products do not stack well on the floor.  If a new product only stacks two pallets high instead of three on the floor, then the facility lost 33% of its floor storage capacity.

As the floor stack height decreases for the pallets, the warehouse will need more storage positions in racking, which is a big investment in capital and time to reorganize the warehouse.  An average stack height approaching three usually means that floor storage will be an effective solution; however, an average of two or less means that racking will be required to efficiently utilize the space.

In terms of warehouse productivity, the wrong storage profile will mean the product sits on the inbound dock longer because no locations are available for putaway.  This will tie up inbound dock and back up yard as trucks cannot be unloaded.  Additionally, the wrong storage profile could be increasing travel time for the high volume items by 20% or more.

Recommended Approach

First step is to tackle the inventory analysis, and the second is to implement the identified changes.  The Pareto demand analysis could really be eye-opening to see what items are driving demand.  The information will lead to better inventory management and application of effort.

Veryable is the on-demand platform to find flexible labor to perform cycle counts or backfill your people to perform the counts.  In this labor market, getting the most out of your workforce is a key driver to success.

Coping with a Skilled Labor Shortage

Labor trends in US manufacturing

As we mentioned in the Megatrends post, US manufacturers are facing a number of headwinds when it comes to sourcing their labor.  These manufacturers differentiate themselves by employing a skilled labor force to create products.  However, Most US manufacturers are small firms with 75% of them employing 20 people or less.

The competition for skilled labor is only going to increase over the next 10 years as 3.5 million workers will be needed in the sector.   The small manufacturing firms are powerless to push back against the Megatrends.  The workforce is changing as Baby Boomers are exiting the workforce, and more and more people move into cities.

All the external pressure on the workforce creates a difficult environment for a company to grow.  A business will find it challenging to meet demand, implement innovative solutions, and increase productivity during peak demand.  This means the business must get the most utilization out of their skilled labor to just keep up.

Skilled Labor Levers

When charting a strategy, a business has three options to select from:  1) Do nothing and maintain the status quo with limited to no growth potential, 2) Hire skilled labor and start a price war eroding profit margins or maintain the same rate and likely hire the low quality labor remaining in a tight labor market, or 3) Increase productivity with the Veryable on-demand labor marketplace.

The Veryable platform is a new operational tool for businesses to capitalize on growth opportunities by flexing general labor into the workforce without the constraint of a long-term commitment.  To keep skilled people mission focused, the Veryable platform provides an easy option to find general labor.

Recommended Approach

Shifting non-value add work to general labor frees up capacity for skilled labor to focus on their work.  If you take a hard look at a skilled labor person’s day, you will find that they spend a good chunk of the day not performing skilled work.  A welder spending 20% of their day welding has the opportunity to increase their welding output 4x by utilizing general labor to prep, clean, and move materials.

Veryable is the on-demand platform to find and flex general labor to better utilize skilled labor.  In a tight labor market, getting more out of the people you have is the most accessible and scalable avenue at hand.

Lean vs. Six Sigma

Many people today tout Lean Six Sigma as a common tool to drive process improvement across industries and functions.  You may think that the two are one in the same, but Lean methodology and Six Sigma are two distinct tools to achieve performance improvement smashed together under one banner: LSS

Six Sigma

Six Sigma is oriented towards identifying and removing causes of defects and minimizing process variability.  The six sigma name references 3.94 defects per million, which is six standard deviations between the mean and control limits. Conducting a Six Sigma improvement project involves collecting data on the process, inputs, and outputs.  The practitioner then statistically analyzes the process data to understand capability and improvement opportunities.

This approach makes sense for a stable and repeatable process that serves customer needs and is not anticipated to change.  Six Sigma is not well suited for updating a process for changing customer demands or a technological disruption.

Lean Methodology

Lean is a method and tool set focused on creating or re-defining a process, so it’s more capable to respond to changing customer demand and to eliminate waste.  While executing a lean process design, the project leader will lead the team through process mapping analysis to define the future state and then compare this against the current state to identify and quantify areas of waste and barriers to change.  

In lean, waste definition extends beyond the obvious material consumption or wait times and into reducing handling and touches, ahead of schedule production, and wasted effort such as re-work.  The lean framework will cause a critical look at the entire process and certainly question the time and effort tied up in quality control processes.

In a manufacturing environment, the lean process is setup to accommodate the needs of the customer as reducing their waste is a logical focus and result of the lean project.  A lean process methodology grounded in serving the customer what they want and when they need it will win that customer for the long term.

Future Vision

As a first step, companies need to think of their desired outcome of the project.  Lean and Six Sigma are both means to performance improvement. However, they both lead to different types of results and continuous improvement mindsets.  Six Sigma will deliver the process improvement, and Lean will create a process toward satisfying the customer needs.

With Industry 4.0, the real possibility of LSS methodology is here.  The automation of real time data acquisition and analytics to identify the appropriate process sequence, to schedule preventive maintenance, and to drive out bad lots of raw materials.  The Internet of Things is the piece that will truly allow the convergence of Six Sigma and lean into a unified tool for performance improvement.

At Veryable, we have a flexible, on-demand labor solution to capture the operating gains and incremental revenue identified by a rigorous process improvement project.  Check out how you can use on-demand, flexible staffing to improve your performance at www.veryableops.com or let us know if you are interested in Veryable Operation Services (VOS) to drive performance improvement.