Live by the Forecast – Die by the Forecast

    

Bloomberg has been the source of stories about Walmart’s inability to keep stock on the shelves lately. The most recent is about a pretty goofy process of external audits, green dots, and flipping back and forth about whether to include store management in the audit process, or to keep them in the dark. Previously Bloomberg offered up anecdotal employee originated stories attributing the problem to lack of manpower. That may well be part of it, but the undeniable logic is that whether it is a retailer having stock on hand or a manufacturer having parts available, if you do so based on forecasting your results are only as good as the forecasts.

In an economy as unpredictable as this one forecasting is a challenging business.

More problematic is the age we increasingly find ourselves steeped in – one in which consumers have access to a tremendous amount of information from sources other than retailers and manufacturers – it is getting tougher to make forecasts self-fulfilling prophecies. Big retailers like Walmart don’t get to control the message and they less and less get to serve as the only choice consumers have. What they called forecasts as little as five years ago were actually plans for the items consumers would have to choose from.

Now they actually have to forecast what customers really want. If they forecast products that are not really the best, customers know it, and customers have other (online) choices. Bad news for the absurdly long lead time based business models the likes of Walmart have institutionalized.

Of course Walmart has an OSA – On Shelf Availability – problem. What is on the shelf at Walmart today is whatever they forecast the customers would want anywhere from three to six months ago. I can tell you what brand of toothpaste, laundry detergent, soup, nuts and anything else I buy today – but I make no promises what those brands will be in October for the simple reason that I am sure between Facebook, Twitter, email and text messages from friends and family, and the sheer magnitude of news and information that will pour into my phone between now and then everything I buy is subject to change. The likelihood someone will alert me to a flaw in something I buy, or to a cool new alternative by sending me a link to a Youtube video is rather high.

If I am that open to change over the forecast period there is no way Walmart can predict my buying plans with any accuracy. And if they don’t have what I want, with a few taps on my phone I can pretty easily find someone who does have what I want.

So Walmart can put up all the green dots they want, and tie executive compensation to OSA as tightly as they want, they will struggle more and more with having the right stuff on the shelves. It simply can’t be done.

I suspect they know full well the problem is not simply one of executing better – throw up a handful of neon green dots to make people pay better attention. Perhaps not, though. If they understood the nature of the problem they wouldn’t waste time putting green dots in stores – nothing a store manager can do to fix a forecast driven supply chain that is executed in terms of months. The green dots should be placed on buyers’ foreheads.

Within the next month or so Walmart will be placing their orders for the Christmas season. Seems ridiculous when put in that context, doesn’t it? But yes, the Chinese, Vietnamese and other third world factories will have to be cranked up by late July and August to assure the volumes of whatever Walmart has forecast are on the water by September to get through their distribution center network and wend their way to the shelves by October.

They are gonna need a lot of green dots when they inevitably run out of the things people really want, and they are gonna have some pretty deep discounts to unload all the stuff it turns out people didn’t want. But that’s the way of it when you live by the forecast – you most certainly die by the forecast.

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