Operations Management: An Integrated Approach, 5th Edition

THE SUPPLY CHAIN LINK

All entities of a supply chain are working to fulfill final customer demands. The forecast of demand is critical, as it affects all the plans made by each company in the supply chain. When entities of the supply chain make their forecasts independent of one another, they each have their own separate forecast of demand. The consequences of this are a mismatch between supply and demand because each company is working to fulfill a different level of demand. Consider that Dell starts its planning process with a forecast of future demand to determine the amount of components it needs to order. At the same time, Intel, which supplies Dell with microprocessors, needs to determine its production and inventory schedules. If Dell and Intel made their forecasts separately, their forecasts would be different and Intel would not be able to supply the exact amounts Dell needs. In contrast, when there is collaboration between suppliers and manufacturers in generating the forecast, all entities are responding to the same level tof demand. A good example of this is the implementation of Collaborative Planning, Forecasting, and Replenishment (CPFR), which we discussed earlier in the chapter.