Events happen, but demand is always
Fairchild Semiconductor example illuminates benefits, challenges of collaborative demand management
By Kevin Parker, Editorial Director -- Manufacturing Business Technology, 2/1/2002 12:00:00 AM
Demand management integrates supply and demand information so as to optimize operations. Forecasting applications—which predict activity over a weekly or monthly time horizon—remain central, but demand management is today a broader activity that can include replenishment, sales and operations planning, and integration with marketing, order, and customer management systems.
Traditional time-series forecasting averages past performance of a demand stream to anticipate further demand. More sophisticated systems take into account factors beyond historical demand, employing statistical methods to remove biases. These more complex forms of forecasting determine and predict the effect "causal" or "event-driven factors," as well as macroeconomic indicators, have on demand. Recent advances in forecasting have focused on gauging the impact of pricing and promotions, product introduction and obsolescence, intermittent demand, and product proliferation.
Dan Janson, director of business systems for Fairchild Semiconductor, says for his company, the forecast "used to be an event."
In other words, as with many manufacturers, forecasting was done several times a year as a means to formulate an agreed-upon-basis for moving forward. Once the forecasting "event" was over, however, the results were too often soon consigned to the dust-bin of history, their credibility rapidly overtaken by other events—whether an economic downturn, or receipt of unexpected orders.
As an alternative, with incorporation of forecasting—now frequently labeled as the more important sounding "demand planning"—into larger supply chain planning (SCP) suites, and using collaborative tools for real-time information sharing, says Janson, forecasting becomes "a form of real-time communication, the content of which changes whenever a company receives new intelligence, wins a contract, or installs a new system."
What even the most current demand management systems can't do is eliminate market uncertainty and the forecasting gamesmanship rampant in electronics and other manufacturing industries. However, based on long experience, Janson says there are ways of dealing with uncertain or misleading information. And frontrunner supply chain planning software vendors are working to move entire industries forward in recognition of the need for greater information sharing.
Suite spot
Fairchild Semiconductor International, South Portland, Maine, is a multibillion-dollar semiconductor supplier for power, analog & mixed signal, interface, logic, and opto-electronic applications. It ships about 10,000 unique products to more than 50,000 customers manufactured at its plants in Maine, Utah, Pennsylvania, and South Korea, as well as assembly facilities in Malaysia, the Philippines, and China worldwide. The company has approximately 10,000 employees. As its business has grown through acquisitions and other means, supply chain planning has become more complex.
In August 2000, the company announced plans to significantly enhance its use of supply chain technology. The initiative includes working with White Plains, N.Y.-based IBM Global Services to deploy planning software from Dallas-based i2 Technologies.
At the time of the announcement, John Watkins, Fairchild senior vice president and chief information officer, said, "With i2's strategic planning solutions we will implement advanced forecasting, planning, and scheduling capabilities to maximize our abilities to be a responsive supply chain partner. It also will help manage inventory in the supply chain, give us better visibility into inventory, and allow unit volume increase without a similar increase in inventory investment."
According to Janson, at present, i2 Demand Planner is up and running "companywide, in all divisions and all plants," with integration to planning functions about 40-percent complete.
The semiconductor industry is a leader in use of cutting-edge information technology, including for demand management. Some say semiconductor industry innovations should spread to other manufacturing industries. Semiconductor industry challenges include long production lead times, short product life cycles, and extremely competitive pricing. The industry also is plagued with recurring boom-and-bust cycles.
It is significant that Fairchild opted for a complete supply chain planning suite. Many planning software vendors recently have been busy breaking up their suites into discrete products, based on reports that users were more likely to apply the technology to specific problems, rather than as a comprehensive solution.
A survey of users by Boston-based AMR Research, published in August, 2001, indicated 85 percent of respondents had only one or two modules implemented, or currently in implementation. Forty-two percent of respondents were focused on a single module. Demand planning, says the report, "is far and away the most common SCP module in use, with 50 percent of respondents being operational and another 12 percent in the process of implementing. Production scheduling follows with a 31-percent penetration rate."
Rajeev Kak, director of high-tech industry marketing, i2 Technologies, says the company currently has more than 200 demand planning suite customers, with about 50 of them being in high-tech. He adds, "It's in semiconductor, with its significant supply chain challenges, that you see the fullest expression of the possibilities inherent in demand planning, master planning integration."
From the start
Janson, previous to his current position, has been involved in almost all aspects of the semiconductor industry, including design, manufacturing, and finance. In the last several years, he's primarily been involved in supply chain initiatives, including production planning and purchasing.
For a new approach to demand management, Janson says the first step is to ask, "What is forecasting supposed to do?" The answer for Fairchild, he says, is "it provides a view of the resources needed to give customers what they want when they want it."
As is generally known, many manufacturers do not have a "single" forecast. Instead, production, marketing, and other functional areas each have a forecast fashioned to reflect their own view of the world. For example, different functions may forecast at different levels of aggregation within product families. What a supply chain planning system gives you, says Janson, "is a single point of reference for the forecast, where total demand can be seen in real time, visible to authorized users all over the world."
One way i2 Demand Planner makes a single forecast possible is its use of a "multidimensional OLAP database." According to i2, "this architecture supports personalized views...needed by various planning constituents [e.g., customer, sales, marketing, etc.] for them to submit accurate input to the demand plan." The database allows the forecast to be "sliced and diced" for analysis, editing, and "what-if" scenario planning.
Further, with integration of forecasting and master planning in a single suite, says Janson, "I can see the response within planning to new demand within 24 hours, something that was near impossible in the past because of the length of time—perhaps several weeks—it would have taken to translate that information back and forth. We can now have a dialogue with the supply chain and have a feedback loop."
Collaborative challenges
Unfortunately, one major challenge to collaborative, real-time demand planning is judging the quality of the information the customer provides. Market uncertainty can never be eliminated, although there are statistical methods for dealing with it. More profound is the fact that all the incentives are for customers' purchasing departments to inflate the forecast presented to a supplier. The problem is only exacerbated by increasing prevalence of contract manufacturing in the electronics industry.
"This has caused, in some cases, doubling and tripling of perceived demand. For one thing, each contract manufacturer thinks it's going to win the bid it made to OEMs," says Janson.
To deal with this kind of gamesmanship, what's needed are people who can analyze a forecast to see how it fits within the total market. "We need operations plans constructed at definite points within the supply chain so that we build to actual end-unit demand rather than demand that's been distorted through intervening layers," says Janson.
Kak says that for forecasting collaboration to work, manufacturers need an understanding of customer behavior, and that a capability within i2 Demand Planner called "exception analysis" can help in this regard. "Ideally," he adds, "it would be better if there were penalty and reward systems."
Demand planning vendors are acutely aware of how vital good information sharing is to full realization of the benefits inherent in their exciting technologies. A number of initiatives aim at defining the kinds of supply chain cooperative efforts needed.
As part of its efforts in this regard, i2 formulated the concept of "Dynamic Value Chain Management" in a white paper it released in November, 2001. The paper notes that to be completely effective in supply chain management, manufacturers must have "a complete understanding of the demand signal... No longer is the demand planning process just about developing a demand signal for a 'snapshot' in time."
AMR says that where a supplier is in a better position to forecast and manage demand for key customers, manufacturers have the option of transferring responsibility for demand management to the supplier via programs such as vendor-managed inventory (VMI). Where more comprehensive collaboration is desired, collaborative planning, forecasting and replenishment (CPFR) is in use. It says newer Web-based demand management applications will combine demand management with CPFR.
A two-edged sword
Once its complete suite of supply chain planning tools is in place, says Janson, Fairchild's next step will be increased collaboration with its business partners, particularly on the sell side. That process will be considerably eased, he says, by the fact that many of Fairchild's customers already are using planning tools from i2 Technologies.
Janson admits that the new generation of forecasting systems can seem a two-edged sword. "There's good news and bad news," he says. "The bad news is the system is integrated so you can't be shoddy in any of the forecast areas. The good news is the system is integrated such that it enforces good practice. Now there is a feedback mechanism that rewards people for doing a good job in forecasting."
| Forecasting & demand management* | ||
| Adapta Solutions: www.adaptasolutions.com | Adexa: www.adexa.com | ALT-C Systems: www.alt-c.com |
| Aspen Technology: www.aspentech.com | BT Smith and Associates: www.btsmith.com | Demand Management: www.demandsolutions.com |
| Demantra: www.demantra.com | E3: www.e3corp.com | Future Three: www.future3.com |
| Futurion Forecasting: www.futurcast.com | i2 Technologies: www.i2.com | John Galt Solutions: www.forecastx.com |
| Logility: www.logility.com | Manugistics: www.manugistics.com | Mercia Software: www.mercia.com |
| NONSTOP: www.nonstop.com | OpenPlus: www.openplus.com | PipeChain: www.pipechain.net |
| Prescient Systems: www.prescientsystems.com | Profile Systems: www.profilesystems.com | Prophet 21: www.p21.com |
| Roadmap Technologies: www.roadmap-tech.com | SKYVA International: www.skyva.com | Slingshot e-City: www.slingshot-ecity.com |
| Smart Software: www.smartcorp.com | SPSS: www.spss.com | Supply Chain Consultants: www.supplychain.com |
| Syncra Systems: www.syncra.com | SynQuest: www.synquest.com | Thrive Technologies: www.thrivetech.com |
| webplan: www.webplan.com | ||
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