Supply Chain Management Guru Hau Lee on Demand Forecasting

By Sarah D. Scalet
Sun, July 15, 2001

CIO — Hau Lee envisions the perfect supply chain not as a chain at all. Instead, it?s an intricate network of suppliers, distributors and customers who share carefully managed information about demand, decisions and performance, and who recognize that success for one part of the supply chain means success for all. The problem, of course, is that companies do not always want to share. That?s where CIOs need to step in and help manage the flow of information and build trust among business partners, says Lee, a Stanford University professor and director of Stanford?s Global Supply Chain Management Forum.

In a telephone interview with CIO, Lee explained the types of supply chain information that he thinks companies need to share and described what CIOs can do to help. The following is an edited transcript of that conversation.

Getting Stuck on Demand

The first problem companies face is a lack of visibility into your partners? demand forecasts. For example, 3M needs information about Procter & Gamble?s production schedule of diapers so that it can plan for the components that go into the diapers. Meanwhile, P&G needs point-of-sale data from Wal-Mart to plan its diaper production. Having demand information from everyone in your supply chain lets you synchronize what you are doing with your customers and suppliers. It also helps you avoid some fatal mistakes, such as building too much manufacturing capacity?or too little.

Cisco embarked on an e-hub project to help solve this problem last year, and it is the most ambitious undertaking that I have ever seen. Cisco?s plan is to try to involve not just its first-tier suppliers but the second tiers and third tiers. What the company found is that sometimes when it has materials shortage problems or delivery problems, it is because of the second-tier or third-tier supplier. For instance, the first-tier supplier to Cisco is Solectron. The supplier to Solectron might be Quantum. Then there are suppliers to Quantum. If the supplier to Quantum is late, that creates problems at Quantum, which would then stop production at Solectron. Cisco wants to have information transparencies at all these layers. Because if Cisco had gotten wind of these problems right away, it could have found an alternative supplier in time to avoid any delays.

Sharing Decisions

Companies are oftentimes not aware of the decisions that other players in the supply chain have made. When that happens, we get burned. Say I?m Hewlett-Packard, and I?m going to introduce a new generation of laser printers and do heavy-duty promotions in North America. If the retailers are not informed, then they may run other promotions that are counter to the HP promotions. Or, they won?t know to start discounting existing products to make room for the new stuff, and they are stuck with obsolete products. Sharing this decision information isn?t very difficult?an e-mail will usually do the trick. It?s more an issue of trust and understanding the consequences that your decisions have on others.

Continue Reading

Our Commenting Policies