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Lost Art of Demand Forecasting Makes a Comeback

·4 min read
supply chain logistics
supply chain logistics

In turbulent times, forecasting is more important than ever before. So is a Plan B in case of supply chain disruption.

That’s according to David Emerson, senior vice president of Seko Logistics.

Emerson has more than 30 years in the logistics industry. He is responsible for expanding Seko’s global footprint between Europe, Asia and North and South America. Seko has more than 120 offices in 40 countries.

He shared his perspective with PYMNTS’ Karen Webster in a Fireside Chat during the recent FreightWaves Supply Chain meets FinTech Virtual Conference.

Transforming the Lost Art of Forecasting Into a Science

“In terms of how our customers are retuning for the future, there’s a couple of key elements of that,” he said. “The first is paying a lot more attention to forecasting and trying to get a handle on the line between supply and demand.”

The art of forecasting had become something of a lost one in the days of easy abundance of goods from what had become the world’s factory, China, Emerson said. That all changed during the pandemic.

Forecasting is crucial to not overreacting to shortages by overbuying. “We’ve seen an awful lot of that driven by suppliers encouraging customers to order say 15 containers instead of 10 because if they don’t take them, somebody else will,” Emerson said.

This amounts to the equivalent of hoarding on the part of buyers and what resembles channel stuffing on the part of sellers. Emerson refers to this as the bullwhip effect, and the result is a lot of inventory sitting around.

The role of logistics companies includes providing customers with the data they need to succeed in making forecasting less of an art and more of a science.

“Visibility at every level of the supply chain is key. And the more information a logistics provider like us can get, the better,” he said. “There are some tools available that we work with, and we have a couple of them embedded in some of our technology that a lot of our customers use that give them some more metrics surrounding forecasting and demand planning.”

Have a Plan B

Black swan events made companies realize that they need to get better at having a Plan B, the second major retuning trend Emerson cited.

According to Emerson, the last few years pre-pandemic with the kind of globalization and global ability just to source and to buy unhindered from China and other markets lulled companies into a false sense of security. That’s not how it is anymore as soon as that market shuts down for whatever reason. This time it was a pandemic, and six to eight years ago it was a volcano in Iceland that brought global air cargo to a halt for two weeks.

Supplier diversification doesn’t necessarily mean replacing legacy sources. Instead, it involves having an alternative in the event of a crisis.

In practice, that involves moving away from a single supplier strategy to having multiple sources for each component. While this may result in cost increases based on volume dynamics as well as increased regulatory and compliance burdens, the pandemic demonstrated that these costs are I effect insurance premiums against catastrophic supply chain blockages.

Diversification is key. According to Emerson, trends in that arena include sourcing from places such as Bangladesh, Turkey and Vietnam. In addition, there has been a return to nearshoring prompted by delays in ocean delivery and high costs of air freight, which have made transport by truck or rail more attractive.

Moving Goods — and Money

Onboarding new suppliers raises the issue of flow of funds in a relevant period between new trading partners along with the flow of goods and information. However, Emerson notes it’s still really all about the data.

“On the flow of money side, one thing which is critical is it’s based on data. Just as it’s moving goods, it’s moving money, but it’s moving data.”

According to Emerson, the expectation now is it should be real time. Seko provides real time cross border funds access through its global business payments network. However, he notes that speed is only one aspect. Payments must also be accurate. That means end to end control of funds flow.

Strategic Imperatives

According to Emerson, logistics companies and their customers are developing more strategic partnerships.

“I think that there’s always been a fundamental disconnect between the merchant and customer and logistics provider relationship which has more to do with how goods are made and the full critical path of a supply chain.,” he said. “We’re starting to see connection efforts flowing into areas of the supply chain where the merchant really needs the reassurance that the manufacturer is going to be able to complete on time and in full.”

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