Technology: Supply Chain - ' Driving on Demand '

Driving on Demand

Historical data is useful, but it can't provide the whole picture if a forecasting process dependent upon a reseller channel is fundamentally broken. When Greg O'Neill was parachuted into senior management at Mitsubishi Motor Sales of America Inc. in 1997, he soon realized he had a lemon on his hands.

At the time, Mitsubishi was selling fewer than 190,000 vehicles a year in the U.S. Yet at any given point, the company had close to 45,000 cars parked in inventory at docks, and another 50,000 or so parked on dealer lots—all told, close to half a year's supply. Dealers requested vehicles based on a combination of forecasts provided by the company and their own sense of the local market. But rather than helping to solve the bloated inventory problem, dealers spent much of their time trying to get deep discounts on vehicles they knew Mitsubishi had in excess stock. And Mitsubishi America sales executives at headquarters in Cypress, Calif., only contributed to the fractured process, says O'Neill, the company's executive vice president and general manager. "There was no forecasting going on, because salespeople were too busy trying to figure out ways to wholesale cars to dealers," says O'Neill. "Reacting to market conditions wasn't even in our frame of mind."

Mitsubishi executives decided they would have to draw a line in the sand. "Overnight, we had to say, 'We will never order another car again,'" says O'Neill. "The only order that will come in will have to come from dealers or customers. Our mantra became: The right car, right place, right time." The company began providing dealers with all of the forecasting information and resources that its own corporate forecasters had access to, such as economic data and industry analyst sales forecasts. And it presented dealers with a suggested purchasing plan using numbers crunched by a demand planning tool from supply chain specialist Manugistics Group Inc. The planning tool combines such factors as historical sales trends, expected sales increases from the launch of new products, and forecasted regional growth. The dealers take that purchasing plan and fine-tune it based on their own instincts about their local markets. In the end, the decision on what to buy—and the ultimate responsibility for any errors as a result of those orders—is placed in the dealer's hands.

That may sound like Mitsubishi has abdicated responsibility for forecasting. But the dealers aren't complaining. "They put control where it belonged," says Mike Graeber, owner of Mitsubishi dealerships in San Bernardino, Calif., and the Temecula valley near Los Angeles. "I would much rather forecast my own sales based on what I think will sell than have them forecast my sales based on what they've got in inventory."