Art Koch’s Profit Chain® Tips
The Supply Chain Revolution: Unlocking the Sustainable Profit Chain
Volume 5 | Number 17 | October 2024

Let’s continue with my What’s Inside the Book series – here I share what you’ll find in Chapter 7: Forecasting is Always Wrong – Plan for Every Part.

Forecasting is Always Wrong – Plan for Every Part

In Chapter 7, Art Koch explores the pitfalls of relying too heavily on long-range forecasting in supply chain management. He explains how forecasting is inherently flawed due to unpredictable variables, and organizations must instead focus on reducing lead times and increasing operational flexibility. By implementing efficient planning strategies and reducing complexity, businesses can significantly improve customer service, inventory velocity, and overall supply chain efficiency. The chapter advocates for a reduction in dependency on forecasting through techniques such as the 80/15/4/1 rule, which prioritizes inventory control for the most critical items.

The Problem with Forecasting

• Forecasts are inherently inaccurate, especially when used for long-term planning.
• Instead of relying on forecasts, companies should focus on reducing lead times and increasing flexibility to adapt quickly to changes.

The 80/15/4/1 Rule

• The author emphasizes that a small percentage of items (1%) drive most of the complexity and cost in inventory management.
• Prioritize inventory control for the most critical items (the top 1% and 4%) to streamline operations and reduce costs.

Reducing Dependency on Forecasts

• Focus on reducing complexity, lead times, and lot sizes while improving flexibility.
• Shorter lead times allow for more accurate predictions and reduced variability in operations.

Strategies for Operational Flexibility

• Implement cross-training, standardization, and Kanban systems to enhance operational flexibility and responsiveness.
• Flexibility reduces the need for large inventories, lowers costs, and improves customer service.

Real-World Example

• The author shares a client example where reducing inventory by 47% led to improved customer service, increased sales, and significant cost savings, demonstrating the power of minimizing forecasting reliance.

Watch the video below for Chapter 7: Forecasting is Always Wrong – Plan for Every Part.

Carpe Diem,

Art Koch