Are Industry Sales Tracking Closer to Real Time Manufacturing Orders?

Lousy forecasting by OEM customers  beats Lean and JIT every time, leaving the OEM’s supply chain bloated with inventory and starving for releases.

Ryan Kutz of PMPA member company Aztalan Engineering asks “Since a better portion of our customers have adopted lean, JIT, or quick response manufacturing practices-where inventory is dock to stock and stock levels are managed daily, making inventory almost none existent-  is there any evidence of this in the year to year trend? Are sales figures becoming even closer to real time with manufacturing orders? “

Ryan asks  this in response to our post February Precision Machining Shipments Level With January  .

Ryan, we agree with your premise that most of our industry’s customers have adopted programs such as  Lean, JIT, Quick Response Manufacturing,  and other dock to production (as opposed to dock to stock) programs. These programs are designed to reduce cost of possession for the OEM. However, we see these as being essentially a blunt instrument used to beat the supplier rather than as a means to truly coordinate supply chain effectiveness. We feel that despite these programs, our OEM customers lack valid insight into market demand, causing inventories to rise and then their orders to our shops to plunge concurrently. Take a look at the following chart from Dr. Ken Mayland of Total Business Sales vs  Total Business Inventories:

These indicators tracked closely in 2014, not so much in 2015...

These indicators tracked closely in 2014, not so much in 2015…

This graph shows that in first three quarters of 2014, our customers had a great handle on their demand and their orders and invetories tracked quite closely.

From 4Q 2014 forward, however, the  % Change in Total Business Inventories continued to remain in the positive Year over Year, while the % Change in Total Sales year over year plummeted through end of Q1 2015, when they “leveled off” at around negative 2-3%.

I think that we err when we overestimate the power of Lean, Just in Time, and Quick Response Manufacturing in the hands of our customers.

These  tools seem to be a blunt instrument at best.

To your question “Are sales figures becoming even closer to real time with manufacturing orders?” the graph above does seem to show that the change in sales and in inventories are converging at end of 2015 and 2016 year to date.

My conclusion is that it doesn’t really matter how fine a resolution our customers have in their Lean, Just In Time, or Quick Response Manufacturing processes and procedures,  if their ability to forecast is so poor, especially during market declines.

Lousy forecasting by OEM customers  beats Lean and JIT every time, leaving the OEM’s supply chain bloated with inventory and starving for releases.

Thanks for the great query.

 

 

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