Supply Chain Strategies II: Improving Responsiveness & Advanced Topics (back to catalog)

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...The term accurate response refers to a series of concepts popularized by Prof. Marshall Fisher and his colleagues in their studies dealing with the apparel industry,1 involving a methodology for reducing demand uncertainty. One component of accurate response is noticing that for fashion items like skiwear, it is difficult to forecast which styles will be popular at the beginning of the season, but once the retail selling season starts, early sales are excellent forecasters of subsequent sales. The solution is to obtain such information early enough to be useful. One idea, used by Sport Obermeyer, was to create an "Early Write" program and invite selected retailers to Aspen, Colorado. Orders written during the Early Write program received an additional discount, but the information obtained by those orders was invaluable in determining which styles were likely to be the "hot" styles for that selling season...

...A third component of accurate response is more complex; it involves estimating your company's forecasting accuracy about similar products. This strategy applies not only to the apparel industry; this analysis can prove useful any time you face highly uncertain demand subject to consumer tastes and/or changes in technologies and feature sets. Suppose there are six "experts" in your company who each create an independent forecast of sales for some similar products. For example, consider the following six sales forecasts for three new apparel styles:

  Expert Forecasts of Sales
Style 1 2 3 4 5 6
A001 10,000 8,000 9,000 11,000 12,000 10,000
B002 4,000 4,500 3,500 4,500 5,000 5,500
C003 2,000 5,000 1,000 8,000 3,000 5,000

You can assess their relative agreement among each other as a measure of how much your company as a whole knows about the popularity of a given product or style. If the six experts have sales forecasts that are, for example, within 20% of each other, we would say that style seems reasonably predictable. But if the six expert opinions differ by a factor of two or three (e.g., 1000 vs. 2000 or 3000), then we would say that style is unpredictable...


1 "Making Supply Meet Demand in an Uncertain World," by Marshall L. Fisher, Janice H. Hammond, Walter R. Obermeyer, and Ananth Raman, Harvard Business Review, May-June 1994.

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Title: Supply Chain Strategies II: Improving Responsiveness & Advanced Topics

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Word Count: Approx. 8,400 words

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Contents

  1. Introduction to Responsive Strategies
  2. Accurate Response and Risk-Based Production Planning
  3. Build-to-Order (BTO), or Mass Customization
  4. Pre-positioning and Fast NPI
  5. Component Commonality
  6. Hedging Demand Uncertainty: The Newsvendor Model
  7. Hedging Uncertainty, Continued
  8. Quantifying the Benefits of Supply Flexibility
  9. Supply Uncertainty
  10. Avoiding Supply Uncertainty
  11. Reducing and Hedging Supply Uncertainty
  12. Demand Management
  13. Risk Sharing
  14. Risk Sharing, Continued
  15. Risk Sharing, Continued (2)
  16. The Role of Software
  17. Conclusions
  18. Test Your Knowledge
  19. Feedback
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