Billoo Rataul has made more than a few wake-up calls to customers during the so-called Great Recession. The CEO of Silicon Valley-area electronics contract manufacturer Paramit Corp. wants his customers to know that lead times for materials have changed dramatically during the economic downturn of the past two years as its supply base shrinks. The company, with approximately $100 million in sales, builds medical devices, aerospace and military equipment and other low-volume/high-mix commercial products and is dependent on the semiconductor industry for its materials. In 2009 alone, 27 semiconductor fabrication plants closed worldwide, and another 21 are expected to shutter this year, according to industry trade group Semiconductor Equipment and Materials International.

The changing landscape has pushed lead times on primary materials from about one month to 12 to 20 weeks and as much as 30 to 40 weeks on specialized items, says Rataul. Without customer forecasts, Paramit is left scrambling to meet customer demand. The company has responded by revamping its own forecasting strategy and requesting that customers do the same. "In my 20 years, never before has it been more important for OEMs to have accurate forecasting to about 12 months -- six months minimum," Rataul says. "They cannot expect to place orders at about six weeks or eight weeks lead time and expect to get product."

Paramit's demand-planning issues have been common across many industrial sectors as manufacturers struggle to achieve accurate forecasts amid sharp market declines. These challenges have some people questioning traditional forecasting strategies that result in set targets that many manufacturers discovered were unattainable when the economy soured.

Customer Participation

At Paramit, Rataul isn't pulling any punches with customers about supply chain issues in the electronics industry. He speaks frankly of the lead-time challenges his privately held company faces in a 2010 business outlook video on the company's Web site. In the nearly three-minute long video, Rataul directs customers to a newsletter entitled "Don't Get Caught With Your Pants Down." The article features seven recommended best practices for supply chain management (see sidebar "Paramit's Top Demand-Planning Steps"). The first best-practice suggestion is the implementation of a six-month rolling forecast.

Billoo Rataul, CEO, Paramit Corp.

For Paramit's customers, the stark reality is they don't have many other options. If they don't provide Paramit with some forecasting data, meeting demand will be difficult. Rataul says this is where showing customers hard numbers comes in handy. "Frankly, you scare them a little bit because it is scary," he says. "They've been insulated from it so long, the first thing you have to do is get in front of them and say, 'This is real; this is what's happening, and your future revenues are going to, frankly, be in jeopardy if you do not forecast. You are not going to be getting the components, and we're not going to be able to build product for you, and you're not going to be able to fill your orders.'"

San Francisco-based processed foods manufacturer Del Monte Foods Co. involves its retail customers in the sales and operations planning (S&OP) process to make its entire supply chain demand driven, says Chief Information Officer Marc Brown. Beginning in 2006, the $3.6 billion company wanted to utilize data from customers as an additional demand signal. Del Monte began tapping into retailers databases and storing that information into its own repository. Wal-Mart, for instance, has a data program called Retail Link that it requires all suppliers to participate in. From there, Del Monte can feed demand data from the retailer's supply network into its own system. That information is eventually fed into a demand-planning system that provides statistical modeling based on the retailer forecast and Del Monte's marketing consumption forecast. "That gives us the ability to look at all of those, have a discussion across the business and determine what our view of the future is going to look like," Brown says.

The system has helped Del Monte improve its forecasting accuracy to the high 80% level compared with the 50% to low 60% range previously recorded, according to Brown. The company also lowered its inventory level by approximately 27% in two years driven by more visibility into its distribution centers. "We know our restocking points, we know what the demand looks like, and we can project where we're going to have outages, how much demand we're going to have in the future," Brown says.

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