Forecasting and going lean – the inertia to change

There was an article in the WSJ this week about changes that Furniture Brands is making due to the recession (WSJ 9/20/1010).  (They make several lines of furniture, including Broyhill, Thomasville, and Lane Home Furnishings.) The first has to do with their forecasting and design process.

In the past, apparently, each year they would make a bunch of designs, show the designs to dealers at trade shows and then hope those designs would sell. In effect, they relied on dealers to have a sense of what their customers wanted. With the new system, they test their designs on consumers first, then show a more limited set of designs to dealers. They claim this approach has improved sales considerably.

There are reasons to believe that there new approach could be better. Dealers are supposed to have a good sense of what their local customers want. But if dealers are casual about their forecasting process, i.e., they rely on memory and gut feel, then it is likely that dealers could make bad choices. Furniture Brands’ customer testing process is more systematic and therefore potentially more reliable.

This reminds me of when vendor managed inventory (VMI)  was first introduced to the consumer packaged goods industry.  I worked with Campbell Soup to evaluate their VMI system in which they decided what to ship to their client retailers. They were able to lower their retailers’ inventories by about 2/3rds and raise their fill rates at the same time. What made that achievement remarkable was that their system was quite simple, painfully simple – forecast sales for the next few days based on a rolling average of sales in the previous weeks, choose an order up-to level that would achieve a given fill rate assuming a reasonable level of demand volatility. That’s it. The data Campbell Soup used could have been used by the retailer to achieve exactly the same result. There was no theoretical need for Campbell Soup to do it, but either they did it or the retailers, for whatever reason, would not. Hence, by applying a bit of systematic thinking, Campbell Soup was able to dramatically improve the supply chain. It is possible that this is what is going on with Furniture Brands consumer testing idea.

The article also mentions that Furniture Brands has made a strong push towards lean manufacturing starting in 2009. Their version of lean includes cross training worker to perform multiple tasks so as to avoid bottlenecks on the line. This idea has been well established to be effective since at least the mid 1980s. Why has it taken them so long to implement this? Why is the diffusion of lean manufacturing so slow? Good question. My only answer doesn’t seem adequate to me – because people won’t change unless motivated to change by “clear and present danger” (i.e., the recession). Inertial can indeed be strong.

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