Paramit's Demand-Planning Steps

When lead times for electronic components reached all-time highs, electronics contract manufacturer Paramit Corp. began looking for ways to gain more supply chain predictability. According to Paramit CEO Billoo Rataul, key initiatives the company undertook include:

1. Asking customers to provide them with a six-month rolling forecast. This enables Paramit to provide its supply chain with pipeline visibility for six months, so Paramit's suppliers can see what the company's demand is beyond its purchase orders. Paramit's customers are liable for any materials the company purchased based on the forecasts they provide.
   
2. Price Monitoring. Each week Paramit sends electronically its entire demand for its part numbers to about a dozen components distributors, even if Paramit doesn't need the parts for a while. The distributors populate from their system their latest pricing and available-to-sell quantities. The information from the distributors comes back in an electronic data file that Paramit uploads into its system, providing the company with pricing, availability and lead-time visibility.
   
3. Vendor consigned inventory. Paramit's vendors are storing and managing components for some of the company's customers. This became necessary as suppliers entered a destocking mode. "In this last downturn, people did a good job of paring down inventory very, very quickly, so their shelves are dry," Rataul says. Paramit gives its vendors a forecast based on the six-month projections it's receiving from customers. The vendors monitor lead times and are able to send material to Paramit's site. Although the material is stored at Paramit, the company does not issue a purchase order for the components until they're pulled into production.
   
   "For example, Texas Instruments has no idea -- if people are not giving them forecasts for a particular product line -- what they need to put in the fabs because it's a 28 to 29-week cycle time for them," Rataul says. "So they need that visibility, and that visibility is brought on by the distribution guys who in turn need to know what the forecast is for
   that particular product."
   
4. Maintain and monitor bonded inventory at distributors. Some key suppliers will allow Paramit to reserve, or "bond," inventory at the vendor's site as an insurance policy. This means the company can maintain an assured supply of high-risk parts at the supplier's warehouse that cannot be distributed to other supplier customers. Rataul says suppliers typically provide services such as bonded inventory or vendor-managed inventory for high-volume customers.
   
5. Front-loaded forecasts. Paramit will "front load" forecasts for customers that show a growth trend and are likely to underforecast. Front loading means the company will take 50% of the quarter's forecast and load it to the first day of the quarter. Paramit then loads 25% on the first day of the second month and another 25% to the third month. "This allows us enough time to deal with push-outs and de-commits from our suppliers without hurting our customers," says Rataul. "All of this requires a higher working capital investment in inventory, but ensures that our customers will make their revenue targets and so will we."

See Also

• Forecasts Demand Change
• Beyond Frozen Forecasts
• Eight Ways to Critically Evaluate a Forecast
• Retailers Help Del Monte See the Future