OverStocksis. A Dangerous Infectious Disease

OverStocksis. A Dangerous Infectious Disease

Manage Excess Inventory is the panacea for every Supply Chain professional.

Acording to McKinsey Global Survey of challenges ahead for supply chain; Reducing Operating costs and Inventory levels, are the main goals for Supply Chain Top Management.

For instance, Pharmaceutical industry is specially sensitive to suffer overstock. Despite using leading-edge technology -the increasing number of complexities and the exponential growth of demand– makes Inventory control one of the top priorities for Drug’s manufacturers.

What is Excess Inventory?

We all can figure out a definition for overstock. Nevertheles, I would like to take a helicopter view of any particular business and focus on the economic implications.

The damage caused by excessive stock impacts directly in Cash flow, which leads to loss of capital available for investing

In other words, let’s call Excess to all the surplus associated with loss of revenue owing to additional capital bound with the purchase or simply storage space taken.

As a result, Excessive stock could be a consequence of over delivery from a Supplier or from poor ordering and management of stock by a Buyer.

Levels of aggregation

Starting from your Suppliers, passing through the manufacturing process and finishing with your product arriving to Customers. Let’s take as an example a Drug Manufacturer

As stated previously, Excess could be allocated at any point of your Supply Chain. Imagine a metaphoric water tank:

Logically, the water in the Tank will represent the total Inventory, so we can expose the following statements:

  • The level of the top water tank is directly conditioned by the Supplier
  • The Top water tank has a direct effect on the below water tank
  • The level of the below water tank has a direct impact on Customer

This is what I call “Levels of aggregation“:

(1) Raw Materials at the Top water tank are hardly calculated at the product unit. Raw materials acquisition depend on economy of scale, they’re bought with a long time in advanced and considering factors such as Demand forecast, Discounts and Rebates …

(2) Finished Goods in the lower water tank will have more value added coming from the Manufacturing process. Then, the cost will be higuer and the Price will be conditioned by the Market regulations and conditions.


Taking into account the diagram above, it is evident that Excess could appear in any of the water tanks.

Excess in the top (Manufacturing Sites) does not immediately impact to the bottom . But having excess in the bottom (Local or Central Warehouses) it blocks the normal flow of materials from the the top.

Therefore, metrics should be accountable for preventing a potential Over Stock in lower water tanks first and then into the top. The tap between both water tanks controls the water flow and is a critical point.

Nowadays, Metrics are tipically in charge of detecting current over levels of Stock such as, Days On Hand (DOH), Days Of Coverage (DOC), (%) SKUs below Safety Stock, RAGY dashboards and so on.


As presented above, metrics are mostly focus on showing the current situation of the business. However, none of the above metrics predict the conditional Inventory future positions.

In a Make-To-Stock industry your future Inventory conditions will be strongly linked to your Forecast. Demand Fluctuations in your Forecast will become the key parameter to analyze in order to predict potential disruptions in your Manufacturing plan.

Additonally, by using the Forecast and estiamted capacity you should be able to create Forward Looking Metrics and predict future Inventory scenarios focus on the estimated demand disruptions.


Following the next steps is like a vaccine to avoid getting sick from OverStocksis …

Mapping your Strenghts and Weaknesses in a SWOT template and make sure that all your team understand the meaning of Excess …

Keep track of your Metrics in a brutally honest mode. Removes all the exceptions that are just there to make look your metrics ‘good’ …

Monitor everything what makes your Inventory metrics down. Write down all the Root Causes which keep you away from being on target …

Evaluate those Root Causes (post-mortem) and start drawing common patterns …

Decide corrective strategies and support your decision-making using looking-forward metrics

Let me know your experiences, I’ll be glad to learn from your stories!


SC Certifications. A good idea to help you out filling the gaps

SC Certifications. A good idea to help you out filling the gaps

Passionate Supply Chainers all around the world are wondering whether studying a Certification makes sense or not. Allow me to say this is quite normal taking into account the huge number of them. Check out the Top 8 according to CIO magazine.

You could have arrived to the Operations department a long time ago. Perhaps you’re a New joiner

It really doesn’t matter. Because Supply Chain has evoluted so much in the last decades that nowadays it is extremely hard to recognise its boundaries in a hyperconnected world.  

Modern Supply Chain

For most of the part, breakthrough Technologies plus a tremendous pressure for reducing Costs -or shall I say, increasing Profits– have radically transformed Logistics into the modern Supply Chain.

And everything is happening too fast. While global consumers demand companies to have a Customer obsession, corporations are desperately looking for talent oasis where to find T-shape professionals.

This means Generalist who knows about Finance, Computer Science, Production, Purchasing an so on.

Indeed, experts who understand different areas across the organization, but at the same time, able to get very deep in the Supply Chain concepts.

Corporate Culture

It is evident that Supply Chain Certifications are helping experts who come from a wide spectrum of different backgrounds.

Certificates do the job that many companies cannot afford, simply because they haven’t created a strong Supply Chain Culture yet.

Organizational culture is a key factor when implementing Supply Chain vision. For example, Unilever (Master SC according to Gartner) spent €34 bn in its SC and their Strategy is clearly defined on 6 steps. One of them is only dedicated to Talent & Capabilities (this is so cool!)

Pros & Cons

Sincerely, creating a list is quite personal. However, I think it could be useful if I enumarate those aspects that usually are less mentioned …


  • Networking. Meeting professionals with the same interest than you will boost your list of contacts. Your new teammates will give you access to fresh information and potentially open your mind to new ideas.
  • Sources. Having new sources of information and access to exclusive contents will expand your alternatives to face Operational dilemmas. This will definitely increase your probabilities of success in the future.
  • Trends. Certifications normally work with lot of industries and you will learn from them. Additionally, discovering the latest business trends will prevent you from potential disruptions in your specific area.


  • Specialization. Nothing bad. Lawyers are specialists and Doctors have specialities. But remember that the world is moving towards generalist.
    My advice? Try to attend learning events outside your area of specialization as well.
  • Competition. Do not try to compare yourself with others just because you have learnt a new knowledge. Everyone lives different realities.
    My advice? A certificate will not make you better than someone else without it, so please don’t publish it everywhere 😉

Thanks for reading and let me know your thoughts!

5 reasons why Artificial Intelligence won’t take your Job

5 reasons why Artificial Intelligence won’t take your Job

Admit it! Everyone is talking about it and there are no doubts that AI is here to stay. So, what is gonna happen? First of all, calm down. AI is a great software achievement and at the same time, a massive opportunity.

Initially, let’s put aside all type of fantasies and science fiction. Overall, Artificial Intelligence is just code developed by people, yes humanoids! There are many cases where AI is making our lives much easier; self-driving cars, speech recognition, expert aviation systems, advanced healthcare decisions and so much more.

Apart from this, let’s focus on workforce. How will AI impact in future Supply Chain jobs? The following is a compilation of facts on why AI will not take your job …

▪ Time-saving does not mean work-saving

AI and Automation can amazingly optimize traditional Supply Chains. On the contrary, this does not mean less work. After all doing something faster it doesn’t implies to not have to do it, you’re just going to be time-efficient.

Additionally, an important part of Supply Chain workload is taken from ‘edge’ situations. Unexpected cases and scenarios which are hard to computarize and predict; even though if they were implemented, an expert decision-maker would be always needed.

▪ Supply Chain is not a standard business

Supply Chain is not a line of business. It’s a department or a dedicated section inside of an specific business. Compared with Aviation, Hi-tech and some others industries, Supply Chain standards are very poor. For instance, the way you measure Stockouts or Customer Service Level probably is not the same than your competitors, right?
This is a critical complexity. Supply Chains are well known for having thousand of different IT solutions in the market, but just a few of them (SAP, Oracle) use standard variables. Consequences? Harder implementations and almost impossible standarizations.

▪ Automation increase quality of time at work

Automation makes your life easier and it has a positive impact on jobs – who enjoys working on repititive and boring tasks? The average job tenure today is actually similar to how it was in 50s and 60s. Think about it. Evolution from Ford’s Mass production to the current Robo-assembly lines has incredibly maximize productivity! Nevertheless, thousands of workers and engineers are still needed.

2019 BMW 5 Series Production at BMW Plant Dingolfing

▪ Machine control is only the tip of the icerberg

To put it more simply, “garbage in, garbage out”. High-quality data is mission-critical. Give the wrong information to algorithms comes up with useless outcomes. Clearly Supply Chains have still a lot of work to do with data quality. The majority of the time is spent in ‘cleansing’ operations and consolidating data to feed a predictive system.

– check out this post to understand the importance of cleansing in Forecasting

Let’s take the model of stock markets; if algorithms where intelligent enough to predict the next momentum, for sure their owners will be rich.
However, the reality is quite different. Stock algorithms are owned by giant corporations (which are the only capable to afford the costs of maintaince), they are helpful to avoid losses and make pushes against the market by generating thousands of orders per second. But still algorithms can not predict next economic crisis.
Many of the information the use needs to be ‘filtered’ and cleansed by humans … don’t forget that in the end, the next big market decision is going to be taken by humanoids boards and CEOs.

▪ AI do not understand humans

Machines will never be able to fully understand us. And yes, you perfectly know the reason. Paradoxically, computers do not have feelings, however somehow they try to process them. AI will never logically accept why we trust one person more than other, because based in facts and data analysis we should not trust any other human.

“based in facts and data analysis we should not trust any other human …”

Just be sure that your AI is not in charge of your next Supplier selection or your next right-hand man. For sure, it will give you the most accurate ranking sort by hundreds of criterias, but the final decision should be yours.

Last but not least, I recommend you to have a look to the interesting Sascha Eder’s article about How Can We Eliminate Bias In Our Algorithms?

The Dark Side of the Forecast: How to Conquer it

The Dark Side of the Forecast: How to Conquer it

Following China Chang’e-4 mission landing on the far side of the Moon, let’s talk about the role of Forecast in business and more specifically in the Supply Chain.

Everyone needs a Forecast. Because living in a hyperconnected world means infinite access to data. In the blink of an eye, trillions of algorithms are translating information into statistics and estimating outcomes.

No matter which is your sector or your expertise. Any enterprise is capable of having a Forecast. Now, the question is: Do you know how to generate it?

During the past century, predicting the future was a tough mission where only fully-dedicated people were able to produce a decent projection.
At the present time, just by using costless technology (R, Excel, Phyton …) almost everyone can create a Forecast from a bunch of time series (data collected in a period of time).

“Just by using costless technology almost everyone can create a Forecast from a bunch of time series”

In the following 3 steps I’ll describe you a path to conquer the hardest parts of creating a Forecast:

First. Use a Baseline Forecast

What does this exactly means in simple english? A definition of Baseline could be “looking to the past and using the same outcome at similar conditions”. Overall, this technique consists into see what’s going to happen in the future based on what happened in the past.

Baselines are really useful in many aspects of life and not only business.
For example, check out Dr. Phil’s explanation on how to create a Baseline in order to catch when somebody is lying to you …

Amazing, right? After all, Baseline are a very reliable tool at the time to predict anything …

In Supply Chain, Demand Planning uses the Baseline which is generated from the Historical Sales of a product. Similarly to the Sargent Major case, the first thing to do is to ‘cleanse’ all the information we believe should not be included into the production of the Baseline.

For a Demand Planner, the way to detect “Real or False truth reactions” like in Sargent’s case, will come from:

  • Outliers detected by the algorithm chosen to generate a Forecast.
  • All the additional information that could impact on Past Demand, such as: Events, Discounts, Competitor behaviour, New Launches, etc. Collected from, Commercial, Marketing, Finance and other departments.

Second. Add Expert Insights

As a rule, many industries have adopted as the best-in-class approach, to introduce experts Adjustments into the Baseline before releasing the final version. Nevertheless, this approach is far from being fully accepted.

Please don’t misunderstand me… Expert Insights are a fundamental part of the Forecast, however it needs to be done with total transparency and avoiding risks (this could be a nice topic for a future post).

In contrast, among many other scientists, the famous psychologists Daniel Kahneman (2002 Nobel Prize in Economic Sciences) and Amos Tversky believes on the Base rate fallacy (and some other psychological theories) which strongly impacts in the individual decision-making of estimating the future.

Copyright – Kahneman, D. (2011). Thinking, fast and slow. London: Macmillan.

Third. Evolve To Consensus Forecast

So, How could you avoid biased forecasts? There is no quick fix.
The explanation is always in your Forecasting process.

Adjusting Baseline predictions must be a formal method based on rigorous analysis of all the potential reasons that could impact on future Sales. In other words, you need to fully understand the sources of any particular rationale to change the Forecast (optimistic or pessimistic).

The mission of a Consensus Forecast is to control the tendency to change the estimation for ‘unknown’ reasons (Gut feeling, intuitions, smell-test, 50/50…) which are hardly measurable. Ideally, in order to add value, we should be able to see in a monthly basis the Forecast of the following areas, including their Max. and Min.

  • Commercial. Unconstrained Expected Demand.
  • Supply Chain. Expected Sales constrained by Plant’s capacity.
  • Financial Forecast. Expected Selling based on Economic conditions.

In conclusion, if you are looking for better projections; Have a look to your Forecasting processes (are they good enough? do you have a benchmark?) and the most important one: Pay attention on How you’re feeding your Baselines (follow the advises above).

“Keep in mind that improving Forecast is not only a technology thing; Most of your Projections are undermined by the quality of your inputs”

 Happy 2019!

Top considerations for your Future SC Software Selection

Top considerations for your Future SC Software Selection

Technology provides capabilities to optimize the operational planning processes of a company. Traditional Supply Chain (SC) software has been widely adopted for a long time, however companies’ No. 1 supply chain priority is to go a step forward on improving its planning capabilities

Given growing SC Complexity and Volatility, it is becoming nearly impossible to revise a complete supply chain without using the latest technology.

Benjamin Nitsche –  SC Volatility Management

Key Functional Capabilities

Let’s imagine that you have a bunch of softwares in scope but it seems impossible to start your comparison.

First of all, focus on how the tools solve complex challenges. Have a look to the following list of key functional capabilities:

  1. Collaboration. External collaboration both with customers and vendors is becoming more common.
  2. Performance Monitoring and Analytics. Includes performance management, business intelligence, alerting, and advanced analytics.
  3. OptimizationBased on a discrete snapshot of reality. Most often applied to inventory and supply planning problems.
  4. Simulation / Scenario Planning. Used to support long-term S&OP or IBP, risk management, SC design, and tactical demand and supply problems.
  5. Scheduling. Resource allocation and operational planning.
  6. Response Management. How quick it reacts to volatility in demand, supply, and product to improve delivery service and operation efficiency.

Choosing a SC Software Vendor

As a good rule, I will recommend you to look for a Suite provider, this means that your vendor must have multifunction product software and your future tool will cover at least four of the functional areas within Supply Chain Planning:

  • Sales & Operations Planning (S&OP)
  • Supply & Replenishment Planning
  • Demand Planning and Forecasting (DP)
  • Vendor Managed Inventory (VMI)
  • Inventory Planning
  • Available to Promise (ATP)
  • Production Planning and Scheduling
  • Distribution Network Planning

Software Evaluation Criteria

In particular for software evaluation you will based your decision-making on the following criteria: Functionality, Technology Alignment, Viability, and Services.

What is more, Total Cost of Ownership (TCO) should be also consider as an important criteria which is separately dealt with using cost benefit analysis.


Responsive planning, Optimization, SC design features, S&OP process maturity, Scheduling , Scenario planning / simulation, Advanced analytics, Scalability and speed, Functional roadmap and User interface.

Don’t infuence your decision in marketing and promises, go to the facts. Make your own analysis and visit the professionals on those companies that are using the current solution (see the vendor credentials) and ask them for their feedback, this is going to give you a real approach.

Technology Alignment

Exception and constraints handling, Integration with ERP, other SCP and legacy systems and Compatibility with custom/legacy systems.

Probably the most critical criteria for your IT department because in the future they will have to create interfaces and adapt all the internal reports and documents that your company is using in order to visualize them in the new tool.


Financial health, Strategic alliances, Availability of support by geography, Total footprint and solution maturity, Market adoption, Vendor direction and Industry specific focus … Not everyone take into account this point but is a very important one.

Nowadays technology companies are involved in many M&A so don’t be surprised that the tool you bought 5 years ago is no longer available and your vendor is not giving you any support because the new company which adquires the rights is not interested at all into maintain it … 

Total Cost of Ownership (TCO)

Total Cost of Ownership considering yearly feeds for all users and Maintenance (very important for future software updates) and support cost.

Finally remember that the real cost of a tool is not going to be only the ammount of zeros that you will pay, always keep in mind future developments and how much are they going to cost you …


To sum up I may say that every project is different, and each client has unique requirements …

Write about your past software experiences and note if there is a bias towards one application over another.

Analyze your environment, especially if your company is focus on one specific software vendor. Establish key project checkpoints … and design a document template in order to do your evaluations of all the points explained before.

Good luck!

What Can A Newborn Teach You About Supply Chain?

What Can A Newborn Teach You About Supply Chain?

After nine months of preparation, there you are, ready or not, she smiled at you and you smiled her back, then you know that everything is gonna be alright. Here is my compilation of learned lessons that my newborn has explained me about Babies Supply Chain.

Plan and Measure – Baby Dashboard

First of all, believe me that when you are in the middle of a crisis, the last thing you want to struggle with are spreadsheets or complex files. Therefore, it makes a lot of sense that any tool at Gemba (following Lean principles) should be clear and simple. In our case, my wife and I opted for using a whiteboard divided in two sections: Meals and Needs, so everyday we were writing down the hours and quantity of milk plus number of nappies used.

At the end of the week, it’s amazing the number of conclusions and decisions that you can make based on all the data collected

In conclusion, some of the first learnings were:
1. Forecast projection of number of nappies that we will need in the future months.
2. Correlation of sleep hours and regularity of naps against the quantity of feeds.
3. How external factors, such as: temperature (ºC), unwanted noise (dB) and unexpected events (relatives coming home); influenced in her cycles.

Balancing Supply & Demand – Nappies case

After doing a lot of research, the best approach for buying most of the Baby things is a economy of scale. In particular for nappies, there are several uncertainties that need to be taken into account. For example, Will X or Y brand irritate my baby’s butt? which size will she use? (weight of ultrasound is only an approximation), will X or Y brand be good enough? and so on and so on.

At the time of placing big orders, keep always in mind that you can mitigate potential damage in favor of potential gains

In principle, supermarkets and internet promotions are totally ‘unpredictable’ but don’t stress yourself, there is a certain pattern and seasonality (specially before summer) to get the best deals from each of them.

Maintaining a Safety Stock is crucial to cover the risks of Supply and Demand, and not as a level of inventory to be kept

Additionally, I excelled at the concept of Safety Stock, because maintaining a Nappy Safety Stock is crucial to cover the risks of Supply, i.e. your online order got late or promotions are not good enough to buy yet … and Demand risk, that happens when your forecast is inaccurate, which is very common when your baby suddenly starts pooping more often than before.

Just in time – Infant’s formula milk

In the case your baby needs infant’s milk, choosing the brand is a mission-critical decision. You are not going to change it unless there is a medical condition.

Here, your supplier sourcing selection should be very careful, in contrast than diapers, some formulas are not available in all the retailers and they are uniquely sold in specific drug stores.

As a result, you will have to identify very well the critical factors of your suppliers, some of the most important are as follows:

  • Capacity – Can I trust that online (Amazon) or local store (Carrefour) will have Stock enough?
  • Lead time – How long is going to take me to buy a new one since she/he finish the box?
  • Commitment to Quality – Very important when your baby starts eating solid food, then you will have to decide among Bio, Organic or Standard vegetables and fruits

As a rule, JIT strategy works very well with infant’s milk, essentially find out trusty Suppliers and do not keep big amounts of inventory – elimination of waste, because of the considerable costs and baby’s uncertainty

Last but not least, baby’s demand is a pull system and in many cases extremely difficult to predict, so if you don’t create any procedure to prevent you from getting out of formula (home-made Kanban) you will find yourself with no stock left to feed her – Is there any bigger pressure than that?


Having a baby is probably one of the biggest and hardest life’s experiences, so trying to stay positive is fundamental. Eventually I’ve been ironic in some of the experiences described before and most of the activities would have never been accomplished without my partner. Infinite thanks to my wife.


  1. Lean systems: “The Machine that changed the world” James P Womack, Daniel T. Jones, Daniel Roos
  2. Dad university “What They Don’t Teach You In School”
  3. Economy of scale https://www.britannica.com/topic/economy-of-scale
  4. 10 Cs of Supplier Evaluation https://www.mindtools.com/pages/article/10-cs.htm
  5. JIT and Kanban systems https://www.toyota-global.com/company/vision_philosophy/toyota_production_system/just-in-time.html

Tearing Up the Rulebook: How Millennials are Changing Concepts of Forecasting

Tearing Up the Rulebook: How Millennials are Changing Concepts of Forecasting

… In the past, software was not powerful enough to provide a reliable forecast, but now we have tools and resources that provide insight like never before.

The question is, are you getting the most out of them?

Everyone knows that the present and future is changeable, so why then are we still using the same forecasting structures and assumptions? Why don’t we leverage technology to model different scenarios and build adaptive forecasts?

During my session, I stressed the importance of avoiding complacency when it comes to our forecasting capabilities, and how we should never regard our strategy as the “right” strategy.

We should never regard our strategy as the “right” strategy …

If you’re achieving forecast accuracy now, then you temporarily have a good strategy that must evolve with changing market conditions.

In my session at the Amsterdam IBF convention, I invited everyone to start thinking about how we can plan for all eventualities and base our analysis and conclusions on Forecast Accuracy Simulation, specifically in terms of what-if scenarios, hierarchy, and product segmentation.

What’s more, we discussed how to set up a separate business unit for Disruptive Innovation to develop the resources and processes needed to deliver improvements in forecast accuracy and greater operational efficiency.

Some of the Key Takeaways were:

  • The importance of leveraging software to build adaptive forecasts and develop a continually evolving approach
  • How to start adding real value to your forecast through demand driven models
  • How to organize for innovation and embrace different perspectives on forecasting

My deepest gratituted to all the IBF institute team.

The Institute of Business Forecasting & Planning (IBF) is a membership organization recognized worldwide as the premier full-service provider of demand planning, forecasting, business analytics and S&OP education. Having some of the world’s most well-known global companies as its members, the IBF is constantly finding and disseminating better ways to manage demand, improve organizational efficiency, and company performance. It has been said that no other organization on the globe has as much depth in its educational content for Demand Planning & Forecasting as the IBF.