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Supply chain management: Why over-forecasting is a bad idea

22 March 2021

A successful outsourcing partnership is built on trust and communication. As an OEM (Original Electronics Manufacturer), it’s particularly important to be transparent about future forecasts for each of your products so your EMS (Electronics Manufacturing Service) provider can understand what kind of demand levels will be generated.

It might be tempting to over inflate your forecasts. After all, you’ve got targets to hit. But the more you can share up to date forecasting information with your EMS provider, the more smooth sailing your partnership will be.

The trouble with over-forecasting
When you share your forecasts with your EMS provider, they will take certain steps to ensure they can meet the demand. They will speak with suppliers to make sure they have the parts they need in the volumes required to meet the demand. They may even recruit more staff so they have enough resources on the ground.

Over inflating the demand can cause all sorts of problems for both the EMS provider and for you. If the EMS provider has taken on more staff in anticipation of high volumes, they may need to go through a restructuring process or make redundancies. They may also end up with an overstock of supplies, which will have a knock on effect on storage costs and warehousing operations. And ultimately, their ability to deliver the orders you do have. In the worst case scenario, the EMS provider may need to sell excess stock back to you, which will cost you considerably.

The reality is that bigger doesn’t always equal better. It’s crucial that you share accurate and up to date forecasts about the volume of orders you expect to achieve. Of course, no forecast can ever be 100% accurate and your EMS partner knows this. But the sooner you talk to your EMS provider about any potential drop in demand, the more they can do to balance the resource and to minimise the impact. Don’t bury your head in the sand. Even if you’re in dire straits due to Covid-19, it’s better to be honest. The outsourcing relationship is a partnership, and you need to work together.

Is under-forecasting better?
Under-forecasting can be equally problematic. If you tell your EMS provider you’re not going to need anything and suddenly you need 100 products every month, there’s no guarantee they’ll be able to meet the demand. They will need to talk to suppliers and potentially bring in extra resource. And this can’t happen overnight.

In the current climate, under-forecasting can be especially troublesome. Covid-19 has caused widespread difficulties in the electronic component marketplace and supply chain. Lead times have been and will continue to extend. Parts that used to be available in two days are now taking up to two weeks to be delivered, while those that took a couple of weeks are now taking a few months. The best way to mitigate this is to give full visibility to your EMS partner and allow them to manage and leverage the supply chain effectively.

Transparency is key
Your EMS partner doesn’t expect your forecasts to be 100% accurate - very few are! What they will need is for you to share up to date information on a regular basis and give plenty of warning if things are starting to dry up.
A good EMS provider will check in with you at regular intervals to ensure they have the most up to date forecasting information. This is your chance to be completely open and honest. Go too high and it will lead to problems. Go too low and there’s no guarantee the EMS provider will be able to meet the demand.

By working together, sharing up to date forecast information, and regularly reviewing that information, you can ensure a smooth and successful partnership.

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