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  • Writer's pictureBen Chu

Forecast that not liable VS lead-time that never committed

  • Forecast is meaningless if supplier don’t follow for stocking. However a supplier would not seriously stock if forecast is unreliable nor liable.

  • If only “liable forecast” is meaningful, why not just place a changeable order?

Let’s be clear - we are not talking “big picture” that forecasting business growth 3 folded in next 12 months. I am merely discussing forecast needed for supplier material planning. In the field of supply chain management, it is a common hot topic that many expert dig into. My point here is, why not just place an order? Here is my argument.

In theory, supplier require forecast from buyer for material and capacity planning. Buyers are asked to provide their best possible prediction of the order qty in next few months. Buyers employ different tools and model (and in my case, I simply discuss sales outlook with business unit and salesmen + looking back last year order’s record to make up my own forecasting “model”) and give an excel spreadsheet. Theoretically, supplier build their inventory base on that, and supposed I shouldn’t have any problem of delivery breakdown if my order is within forecast qty (in my dream!).

The theory has points to be challenged. 1. What if, eventually my order is much less than my forecast? 2. If supplier has the liability to stock up and make sure no delivery problem according to that piece of information (THE forecast), is it fair for buyer who give it out has no responsibility for it accuracy?

In practical, question 1 has two kind of outcomes. Smaller supplier will forgive you, and adsorb it as their own hidden inventory cost, with a believe that you order will eventually use up those extra inventory. Most of them won’t even raise it up as a issue to discuss due to “good relationship” concern. Bigger suppler would not be that easy. In one of my experience dealing with a major supplier in Shenzhen, they fight back and ask for us paying the related inventory cost due to our inaccuracy. They further ask for making an amendment of contract that, they will only respect the forecast liability if we, the buyer, also responsible legally for its accuracy.

As a young buyer, it was hurt and I was not very peace after learning this. I had some fight and tighten certain standard in return. However after all these years, I can understand and respect where they come from. Take away all the imbalance power between big buyer and small seller, yes, it is pretty unfair request that the responsibility goes solely to one side of the party.

One may argue that all the “fairness” in business could be monetized and I am pretty much agree on this. Point is, the supplier need to realize this when they agree to “follow your forecast”. And in fact, from what I see in my BEA community, not too many people look at it seriously. Unless supplier fully realized the cost of such responsibility, buyers are merely taking advantage by their superior position.

And the issue doesn’t stop at business ethic. The ambiguous position of forecasting is questionable for it existence. WHAT is the different between a liable forecast and a changeable order? I leave this question open, for the time being.

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