Somma’s Vice President of K-12 Sales, Mark Rodriguez, recently shared an article highlighting the importance of forecasting for Texas Association for School Nutrition’s summer issue of TASNews! Read Mark’s article, “Forecast to a Better Price,” below, or visit TASN online and log in to view.
Forecast to a Better Price
by Mark Rodriguez, VP of K-12 Sales, Somma Foods
A few months ago, I wrote an article for the TASNews about the evolution of the National School Lunch Program over the past 30+ years that I’ve been a part of it. Everything about the program has changed, from the way manufacturers do business with schools to dietary guidelines, bid and RFP parameters and proper ethical procedures. So, it’s no surprise that forecasting practices are also changing.
Forecasting, one of many things that manufacturers still rely on to accurately schedule production, seems to be diminishing in importance year after year. Programs like Net Off Invoice have made it extremely easy for schools to get commodities, and as a result, the importance of providing an actual forecast to manufacturers has dropped on the priority list. Admittedly, even back in the day a forecast wasn’t always 100% accurate, but it did help reduce the cost of inventory throughout the entire pipeline.
At this year’s SNIC conference, forecasting was listed as one of the industry’s biggest challenges, right up there with purchasing ethics and bid specs. These programs, developed to make things easier, have had an obvious impact on cost. So, the question is: How can we now have our “best cost cake” and eat it too? One potential answer is forecasting. Forecasting could help reduce inventory levels across all areas, which is beneficial to manufacturers and operators alike.
Today, the majority of inventory is produced based on total bid quantity or an estimated annual volume that is calculated using purchase history. This can lead to excess inventory being produced and held throughout the pipeline. For example, a distributor can carry millions of dollars worth of inventory at any given time. And, for every case of finished product a distributor has, there is another case sitting at a manufacturer’s warehouse, in addition to raw materials waiting to be used, packaging, and supplies on order for replenishment. All of this inventory creates additional cost and, regardless of where that cost is realized, it is the end user that ultimately pays.
This is basic supply and demand. The trick is to recognize that each step in the process adds cost, and determine the best way to minimize that cost at each step. Forecasting can be a powerful partner when negotiating a price, especially if inventory cost can be better managed. So, partner up with your manufacturers and create best and worst case forecast scenarios. That simple (or maybe not so simple) step can help a manufacturer develop better purchasing and production plans that result in cost savings across the board. Do the same with your distributors to help them manage inventory levels. The fewer surprises we face as an industry, the better we get at driving cost out of the equation for everyone.