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  • Writer's pictureThomas Weikart

Be Ready! Manufacturing Weakness Just Inventory Burn-Down

Recent industrial company earnings were mediocre but their stock prices remained solid or went even higher... Sales were weaker and outlooks were somewhat cautious... What gives?

It appears that we're in another "cyclical burn-down" of inventories, where customers consume their existing inventories and don't replenish them from the manufacturers as quickly. That's prudent management of cash. However, if one believes the stock prognosticators and the strong consumer buying trends, demand will be gaining momentum soon... Manufacturers best be ready!

Having a well-integrated customer demand forecasting and sales & operations planning (SOP) process can get you ready for the coming upswing in demand. Having close, consistent customer relationships can greatly help you anticipate demand changes (both up and down!). Then, sharing this demand data with your operations will ensure manufacturing is ready for upswing in orders.

Many manufacturing companies make this demand & SOP process too complicated and too time consuming. You don't need customer forecasts for every part (just the bigger demands). You don't need to operationally plan every part (focus on capacities in key product lines/families). If you get your manufacturing capacities correct, you can handle the smaller, sporadic customer needs.

As a college professor once told me: "Statistical forecasts are bad five minutes after you calculate them". However, supplemented with key customer demand information through close collaboration makes the information much more useful. And, you need this information - forecasting demand allows you to right-size your manufacturing and supply base. It's your best chance to BE READY!

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