Your Crystal Ball

One critical element in managing the supply chain is predicting how much of specific materials, parts and products will be needed at a given location at a given time. If you can accurately plan for such demand, then you can manage inventory levels very tightly.

The payback can be huge. Bandag Inc., a $1 billion manufacturer of tire retread products in Muscatine, Iowa, deployed demand planning software from Rockville, Md.-based Manugistics Group Inc. that cut back supply orders by 50% and peak inventory by 25% in the first year of operation, says Greg Harris, manager for production planning and logistics. But implementating a large system can cost seven figures, and success depends on having clean historical shipment or order data that the forecasting system can leverage.

Although the technology has been around for several years, many suppliers still don't use it. Market leader i2 Technologies Inc. in Dallas says that in 50% of new installations, no automated demand planning systems are in place.

"Microsoft [Excel] is the most widely deployed demand planning tool in the world," says Karen Peterson, an analyst at Stamford, Conn.-based Gartner Inc. But it lacks sophisticated forecasting algorithms, can't track multiple inputs and can't slice and dice the data for different audiences, she says.

Market pressures are forcing more companies to adopt demand planning systems. "Big retailers like Wal-Mart . . . can dictate terms to suppliers," says Rajesh Varma, director of demand planning at Leiner Health Products Inc. in Carson, Calif. "Unless you have the appropriate forecasting tools in place, you'll never sell these customers."

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