Like buyers, suppliers also need forecasts to drive their supply chains. Whether a supplier can execute effectively largely depends on the timeliness and accuracy of demand forecasts.

Where does forecast come from? From the buyers. However, some buyers are concerned about the accuracy of forecasts and are unwilling to provide demand forecast to suppliers. As a supplier, you have two choices: you won’t build capacity or stock if there are no orders; you will need to bear the risk of forecasting and make your own predictions.

when demands come ,  supplier may not be able to respond in time. If the supplier makes their own forecasts, because they are farther from the demand than buyer, they have less data and judgment, leading to a lower accuracy in forecasting. Regardless of whether it’s a shortage or surplus, it negatively impacts either the customer or the supplier, which is not ideal from a supply chain perspective.

It is easy to understand whoever is in the best position to perform a certain task and they should do it; This is a fundamental principle. Clearly, buyers are closer to demand and better positioned to make forecasts.

Big enterprises generally have rolling forecasts that are regularly sent to suppliers. For example, the accuracy of a 13-week forecast is relatively high and guides deliveries for the next three months; the accuracy of forecasts for 14 to 26 weeks is lower and guides suppliers in medium-to-long-term capacity planning. In poorly managed enterprises, the ability to forecast demand is weak. If they cannot forecast their own production, it is even less likely that suppliers will be able to. Owing to lack of forecasting, planning must rely on execution to compensate, leading to overtime production, where they are busy during peak times and idle during slow periods. Buyers might seek multiple sources, having several suppliers for a single material number to avoid scenarios where Supplier A cannot deliver, leaving Supplier B as a backup. The consequence is that supplier shares fluctuate continuously, increasing uncertainty in demand and making it more challenging for suppliers to manage their capacity and inventory.

Furthermore, when the buyer has substantial demand that takes up a significant portion of the supplier’s capacity, no supplier will have such excess capacity to “prepare”—because if their capacity utilization is low, that supplier would have gone bankrupt already. Therefore, regarding suppliers’ capacity preparation, we must acknowledge the importance of forecasts and urge and assist suppliers to prepare early.