February - 20208 logisticstechoutlook.comIn My OPINIONIn My OPINIONIt does not matter what is your industry segment--but especially if you are part of a public company--you probably have heard about cash conversion cycle or cash to cash cycle. Simply put, how fast is your organization moving the money from paying your supplier to cashing out from your customers?Cash conversion cycle (CCC) is a metric that Wall Street has been paying more attention over the years, since it is recognized as a mayor source for working capital. Now, why am I talking to you about CCC when the theme of this CIOReview issue is demand planning and forecasting?I am not an expert on forecasting by any means, but I have worked long enough on the inventory management for the specialty chemical industry to understand how the forecast (or lack of thereof) can help or hurt any given organization to get a better hold on inventory or take the whole organization for a not-so-funny ride.Bram DeSmet in his new book "Supply Chain Strategy and Financial Metrics: The supply chain triangle of service cost and cash" enunciate the reasons to hold inventory: strategic stock, anticipation stock, pipeline stock, safety stock and cycle stock. Most of these layers of inventory can and will be impacted by forecast. In this article, I would like to focus on safety stocks, since the safety stocks or buffers are there to manage uncertainty. In the manufacturing industry, most of the uncertainty comes from the demand and the supply. More so, I have witness on my industry segment that the effect of demand variability on sizing safety stocks is about ten to one compared to supply variability. In a world where limited resources are the norm, if you have to prioritize the activities of your team, you will get way more bang-for-your-buck tackling forecast variability and not supply variability.S&OP, SiOP or IBPApproach to inventory needs to be switched, most times we think about it as a liability but if we were able for a second to think of inventory as an asset, the whole thought-process changes. When you invest in an asset you expect a return on By Gian Carlo Leocata, Director of Supply Chain, Sensient Technologies Corporation [NYSE: SXT]Are you Concerned about your Inventory? Look After your Forecast
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