Flostock News #21

Flostock speaking about the Bullwhip at the 4th ICIS World Polyolefins Conference

4th ICIS World Polyolefins Conference

Flostock will speak about volatility and the bullwhip at the ICIS World Polyolefins Conference in Amsterdam on 25-26 March. Flostock will explain how “Reactive Stocking” is responsible for bullwhipping and other forms of volatility in the huge polyolefins supply chains. Attendants will receive an Excel file for DIY calculations of the stock effects in their supply chains, improving their forecast accuracy with an estimated 10%. If you, beloved reader, would also like to receive such DIY file, please send us an email. Polyolefins are plastics and are produced by companies like LyondellBasell, SABIC, Ineos and Lanxess.

Gaps are proportional with adaptation time, according to Flostock’s 21st Law of Demand

Gaps keep you busy

Gaps, defined as the deltas between stocks and desired stocks, are proportional with adaptation time (AT); the period a manager allows himself to close the gap. In a continuous situation, with a gap that is never fully closed, the gap becomes proportional with AT. Intuitively, managers don’t want large gaps, so they order replenishments with low AT. If the AT they  use is smaller than the lead-time, they may cause oscillation.  If you don’t believe this, try ordering your goodies faster and observe whether your supplier will become more volatile.  If you want to know more, give us a call.

Alternative ten to the Flostock forecasting methods: Judgment

Impartial judgment

Judgment is one of the so-called Qualitative Methods and is used a lot because it is so simple. It means that the forecast is based on the opinions of (presumed) experts, such as customers, industry leaders, experienced sales people, or simply ‘the boss’. Choice of which opinion to believe is subjective and the method is sentimental and opportunistic. The organizer may even be ‘leading the witness’. In addition, many experts have imperfect info and are simply guessing. This method may also include the infamous ‘Analyst Override’ or ‘Executive Approval’, so introducing bias and wishful thinking. Finally, as with all alternative methods, it can only forecast linear.  

Use of Flostock modeling for Target setting

Hit the target?

One of the least popular applications of the Flostock models is to use them for target bonus systems. A target could be:  “Do 0,5% better than the market”. Half a percent Market Share increase per year would be great in many markets. The models calculate market demand based on end market consumption and stock movements in the chain and they do that so well, that it becomes crystal clear what the managers contribute to the business result and thus what kind of bonus they deserve.  In an up going market the managers could no longer claim the windfall growth that comes automatically. And although in a declining market this would benefit the managers, because they would be able to show that they’d done better than the market, many managers are reluctant to work under transparent conditions.