Have you ever checked the weather forecast before a trip to decide what to pack, only to be woefully unprepared for the trip because the weather man was completely wrong? If so, then you know the importance of accurate forecasting. The same is true in supply chain management. Supply chain managers use forecasting to ensure that they have enough supply on hand to satisfy demand. Accuracy is essential, because over-estimation means bloated inventory and high costs, while under-estimation means not enough product to supply to valued customers. The trick to accurate forecasting is to balance inventory to make sure the company has just enough supply to meet demands of the customer, which can be achieved via Lean Manufacturing.
Balancing inventory based on forecasting can be a tricky business, and many supply chains rely on lean manufacturing to do so. Lean manufacturing reduces costs, cuts out waste, increases productivity and quality, and still turns a profit. Behind every successful lean manufacturing process is the principle of Just-in-time (JIT) manufacturing. JIT manufacturing restricts a business from producing or storing excess inventory. Doing so allows a company to reduce inventory, which is a good thing because when you’re sitting on inventory you’re sitting on profits. JIT manufacturing reduces the amount of material on hand which is an advantage to a company because it means less of a business’s funds is boxed up in the warehouse. Lower levels of inventory frees up funds to allow the the business to pursue activities of expansion. JIT manufacturing also reduces the chances for bottlenecking during the manufacturing process which means a more efficient and cost effective supply chain.
Another aspect of lean manufacturing that allows for accurate forecasting is the idea of continuous improvement, which reduces operating overhead by decreasing wasted time and effort. Continuous improvement cuts out the fat of manufacturing though methodologies that identify savings opportunities and putting them into action. Utilizing continuous improvement methods allow business to continue as normal while consistently evaluating ways to improve. Business can do this by choosing a process for improvement, map out the current process, identify ways the process can be streamlined, and making those edits to create a better system. The key to this principle is working this process into a company’s usual business practices, which allow companies to work more efficiently with less waste.
The 5S Philosophy
Lean manufacturing also relies on standardization, or the 5S Philosophy that uses a list of five Japanese words that, when translated, all begin with the letter ‘s.’ The 5S Philosophy is meant to a company create product that is right the first time, every time. By standardizing everything from tools and machines to processes and arrangements, there is a lot of control that helps the company know what is creating high quality products and what is not. With the 5S Philosophy, there is less room for mistakes, which reduces the need for excess inventory.
If you want to eliminate waste and optimize business processes to cut costs and deliver valuable products to your customer, accurate forecasting through lean manufacturing is essential, and fortunately it’s also attainable by utilizing these principles.