Accurate Response Technique that allows companies to match supply and supply in a uncertain environment

Planning Environment Speculative – Predictable demand – Low-risk products Reactive – Unpredictable demand – High-risk products

Accurate Response Approach Get as much as early market signals as you possibly can Slash order processing time through computerized ordering/processing system Reduce manufacturing lead time by pre-positioning raw material and components Utilize air freight, especially in the unpredictable demand during the reactive period

Measure of Risk Mean of forecast Standard Deviation of forecast Range of forecast Forecasting error

Why Inaccuracies in Forecast Increasing product variety – Leads to higher forecast errors Shorter product life cycle – Less demand history to base forecast Longer supply chains – Could imply production commitments have to be made earlier

Difficulty in matching supply with demand No problem if we had perfect forecasts or perfect response, i. e we could make everything to order Scenarios at most companies: – “Reactive Capacity” decreases with time – Forecast improves with time Options: Forecast better, plan better, or “react to demand signals better. time

Ingredients of Accurate Response Flexible manufacturing systems Reduced cycle time Be more resourceful in using demand indicators to improve forecast Institute a system of tracking forecast errors

Ways to increase reactive capacity Reduce lead time – Transportation: use of air freight – Factory throughput: cellular/flexible manufacturing – Material: hold raw material inventory Obtain market information earlier – Use information technology – Identify demand indicators (i. e early write at Sports Obermeyer)