As the name suggests, operative buyers are responsible for the day-to-day purchasing activities of a company. These buyers are often in direct contact with suppliers and play a crucial role in ensuring that the company has the necessary inventory to meet customer demand. One important aspect of the operative buyer’s role is to provide forecasts to suppliers. A forecast is a prediction of future demand, and providing this information to suppliers can help to ensure that they have the necessary inventory and production capacity to meet that demand.

Here are some reasons why operative buyers should provide forecasts to suppliers:

1. Improving supplier planning: By providing accurate forecasts, suppliers can better plan their production schedules and ensure that they have the necessary inventory on hand to meet customer demand. This can help to reduce lead times and improve on-time delivery rates.
2. Reducing inventory costs: When suppliers have accurate forecasts, they can optimize their inventory levels to meet demand. This can help to reduce excess inventory and associated costs, such as storage and carrying costs.
3. Strengthening supplier relationships: Providing forecasts can help to build stronger relationships with suppliers by demonstrating that the company is committed to working collaboratively with them to meet customer demand.
4. Minimizing supply chain disruptions: When suppliers have accurate forecasts, they are better able to anticipate changes in demand and adjust their production accordingly. This can help to minimize supply chain disruptions and ensure that the company has the necessary inventory to meet customer demand.

Potential Sources for Demand Forecasting

1. Historical Sales Data
   • Source: Company’s sales records.
   • Use: Analyze past sales trends to predict future demand. Historical data provides a baseline for understanding how demand fluctuates over time.
   • Example: If your company sells 100 units of a product every month, this data can help project similar demand in the future.
2. Market Research Reports
   • Source: Industry reports, market analysis firms, and research studies.
   • Use: Understand market trends, consumer behavior, and industry growth to forecast demand.
   • Example: Reports indicating a growing market for eco-friendly products might prompt an increase in the forecast for green product lines.
3. Customer Orders and Feedback
   • Source: Direct customer interactions, orders, and feedback.
   • Use: Track customer orders and feedback to gauge future demand. This source is particularly useful for understanding short-term demand spikes.
   • Example: A major customer indicates plans to place large orders next quarter, prompting adjustments in the forecast.
4. Economic Indicators
   • Source: Economic data from government agencies and financial institutions.
   • Use: Use economic indicators like GDP growth, unemployment rates, and consumer spending patterns to forecast demand.
   • Example: An improving economy might signal higher consumer spending and increased demand for your products.
5. Sales and Marketing Plans
   • Source: Internal business strategies and marketing campaigns.
   • Use: Align forecasts with upcoming sales promotions, new product launches, and marketing activities.
   • Example: A planned marketing campaign is expected to boost sales by 20%, influencing the demand forecast.
6. Seasonal Trends
   • Source: Seasonal sales data and patterns.
   • Use: Account for seasonal variations that affect demand, such as holiday seasons or weather-related changes.
   • Example: Increased demand for winter clothing in the fall and winter months.
7. Supply Chain Data
   • Source: Information from suppliers and logistics partners.
   • Use: Collaborate with suppliers to get insights into raw material availability and lead times.
   • Example: Suppliers provide data on their production schedules and constraints, aiding in more accurate forecasts.

Risks Associated to provide forecasts to suppliers

1. Forecast Inaccuracy
   • Risk: Providing inaccurate forecasts can lead to overproduction or underproduction by suppliers.
   • Impact: Overproduction leads to excess inventory and increased holding costs. Underproduction results in stockouts and potential lost sales.
   • Mitigation: Use multiple data sources and regularly update forecasts to improve accuracy.
2. Supplier Dependency
   • Risk: Over-reliance on a single supplier based on forecasted demand can be risky if the supplier fails to deliver.
   • Impact: Disruptions in supply can halt production and impact business operations.
   • Mitigation: Diversify suppliers and create contingency plans.
3. Market Volatility
   • Risk: Sudden changes in the market can render forecasts obsolete.
   • Impact: Demand shifts due to economic downturns, competitor actions, or changes in consumer preferences.
   • Mitigation: Implement flexible supply chain strategies and maintain agility to respond to market changes.
4. Confidentiality and Competitive Risk
   • Risk: Sharing detailed forecasts might expose sensitive business information.
   • Impact: Competitors could gain insights into your business strategy if the information is leaked.
   • Mitigation: Use confidentiality agreements and share only necessary data with suppliers.
5. Bullwhip Effect
   • Risk: Minor fluctuations in demand can cause larger variances in orders upstream in the supply chain.
   • Impact: Can lead to inefficiencies and increased costs throughout the supply chain.
   • Mitigation: Improve communication and collaboration with suppliers to smooth out demand variations.

Provide forecasts to suppliers – define forecast in a contract clause

Example of a contract clause in a Frame Agreement defining Forecast in a buyer – supplier relationship

Clause X: Provide forecasts to suppliers

1. Definition of Forecast: For the purposes of this Agreement, “Forecast” shall mean a non-binding estimate provided by the Buyer to the Supplier outlining anticipated future demand for the Products over a specified period. The Forecast is intended solely for planning purposes and does not constitute a purchase order or a commitment to purchase.

2. Provision of Forecast: The Buyer shall provide the Supplier with a rolling Forecast on a monthly/quarterly basis. Each Forecast shall cover a period of [specify period, e.g., six months] and shall detail the estimated quantities of each Product that the Buyer anticipates requiring during each month/quarter of the Forecast period.

3. Adjustments to Forecast: The Buyer may adjust the Forecast as necessary to reflect changes in market conditions, customer demand, or other relevant factors. The Buyer shall notify the Supplier of any such adjustments as soon as practicable.

4. Supplier’s Use of Forecast: The Supplier acknowledges that the Forecast is provided for informational purposes only and is intended to assist the Supplier in planning its production, inventory, and other resources. The Supplier agrees that it shall not rely on the Forecast as a binding commitment from the Buyer.

5. No Liability for Variances: The Buyer shall not be liable for any variances between the Forecast and actual orders placed. The Supplier assumes all risks associated with any actions it takes in reliance on the Forecast.

6. Communication and Review: The Buyer and the Supplier shall engage in regular communication to discuss the Forecast, any significant variances, and strategies to address potential supply chain disruptions. Formal reviews of the Forecast and actual demand shall take place during quarterly business review meetings.

Note: Consult a legal advisor in relation to your specific contract.

Summary – Provide forecasts to suppliers

Overall, providing accurate forecasts to suppliers is essential for ensuring that the company has the necessary inventory to meet customer demand, while also reducing inventory costs, strengthening supplier relationships, and minimizing supply chain disruptions. By working closely with suppliers and providing timely and accurate forecasts, operative buyers can help to ensure the success of their company’s supply chain operations.

Creating and sharing demand forecasts with suppliers is essential for effective supply chain management. By leveraging multiple data sources such as historical sales data, market research, customer feedback, economic indicators, and internal sales plans, you can develop accurate and actionable forecasts. However, it’s crucial to be aware of and mitigate the risks associated with forecast inaccuracies, supplier dependency, market volatility, confidentiality concerns, and the bullwhip effect. Implementing robust forecasting practices and maintaining open lines of communication with suppliers can help ensure smooth and efficient operations.

Learn more about the operative processes in the Operative buyer role introduction course. The course Operative Procurement Processes which introduce how Arjan van Weele define operative and tactical procurement, what a buyer buy and 8 important processes which manage day to day work for the operative buyer.

Note: Illustration to the blogpost “Provide forecasts to suppliers – the operative buyer” was created by Chat-GPT on May 19, 2024.