CHAPTER ONE

1.0 INTRODUCTION

1.1 Background of the Study

Forecasting is required in many situations. Deciding whether to build another power plant in the next five years requires forecast of future demand. Scheduling staff in a call centre requires forecast of call volumes. Stocking an inventory requires forecast to stock requirements. Telecommunication routing requires traffic forecasts a few minutes ahead. Entering new market require market forecasting. So, whatever the circumstances or time horizons involved forecasting is an important aid in an effective and efficient planning.

According to Chopra and Meindl (2011) a Supply Chain involves the flows between and among stages with a motive to connecting the source to the end consumer. In the simplest terms, a Supply Chain is the sequence of processes involved in the movement of a product or service from production end to the consumer end.

Pfeffer, Jeffrey and Salancik (2013) allude that marketing performance is described by its effectiveness and efficiency. From a resource dependence perspective efficiency is defined as an internal standard of performance. This is related to whether an organizations’ processes are optimizing the various resources at disposal whether financial, technological, human or physical. When a supply chain is efficient, this means that it can deliver products to the consumer end at the lowest cost.

Effectiveness on the other hand is an external standard of fit to various demands. This is better described as how well the supply chain can meet the needs and requirements of the various stakeholders concerned with its activities. These stakeholders may include customers, suppliers, partners and the shareholders. In assessing whether the supply chain is effective, customers will be checking to see whether they received the right product at expected time, Shareholders will be interested in assessing whether they got the expected returns from their investment while vendors and partners will be looking to see how well the chain is able to provide solutions to their problems.

Therefore, in its broadest sense, supply chain efficiency and effectiveness is the measure of the supply chain getting the right product to the right place at the right time and at the least cost.

Ericson (2014) suggests that the analysis of efficiency and effectiveness involves the meaning, the use and the relations between efficiency and effectiveness. Therefore, to assess the performance of a supply chain, efficiency and effectiveness ought to be looked at an independent perspective and at an interdependent perspective. Ericson (2014) provides a threestep analytical framework for this; first, efficiency and effectiveness are described as two independent constructs, i.e. as a dualism, second, efficiency and effectiveness are described as two interrelated constructs, i.e. as a duality and finally he proposes an analytic of the constructs beyond the duality applied to a supply chain. This framework therefore implies that efficiency and effectiveness cannot be purely independent in a supply chain with bias on processes.

Hertz (2011) lobbies for the supply chain to be a part of a network that supplies a specific product from raw material to final customer, it is a whole commercial chain embedded in the network, therefore the goal of an organization has to be set in relation to the networks’ needs. By extension therefore, organizational efficiency is an insufficient evaluation and so is effectiveness in one relationship. Strategies involving collaboration between players and integration of smaller chains rely greatly on factors that individual organisations’ do not have control since they do not have direct ownership of them. This in turn will have implications on measurement and definition of goals in a network context especially where efficiency and effectiveness are objectives. The supply chain therefore must always endeavor to minimize stock outs and at the same time ensure that end cost throughout the chain is kept at the minimum.

Sheldon (2014) describes demand forecasting as a process done to help the organizations understand profit potential by indirectly setting the stage for capacity, financing, and stakeholder confidence. The implementation of the demand forecasting enables the supply chain players to determine the closest possible forecast to the planning cycle and estimate with confidence the volume of production, inventory and sources, capacity distribution among products to maximize the profits of the whole company.

Demand forecasting represents a set of methodologies and information technologies for the use of demand forecasts in the process of planning. It aims at accelerating the flow of raw materials and services beginning with the suppliers through converting raw materials to products in the company and to their distribution to their end users.

Johnson (2019) notes that these forecasts create a basis for planning company processes and enables managers to plan future needs and consequently make rational decisions.

Therefore, the main driver for efficient and effective supply chain is the sharing of a mutual forecast. Gros and Grosova (2014) insist that Supply Chain Managers require higher stability of customer needs, exact demand forecasts and estimation of the sales promotion actions.

With the increasing complexity of product offerings and marketing strategies which are worsened by shortened product life cycles, supply chains require more accuracy, flexibility, and consistency in determining inventory requirements.

Bowersox, Closs and Cooper (2012) suggest that demand forecasting can provide such capabilities by developing the forecasts that drives anticipatory supply chain processes. These forecasts are the projections of seasonal demand that determine production and inventory requirements. Each projected quantity might include some portion of future requirements placed in anticipation of customer demand along with some portion of forecasted demand based on history. Simply, the demand forecasting process integrates historically based forecasts with other information regarding events that could influence future sales activity such as promotions, price changes, and new product introductions to obtain the best possible integrated summary of requirements. The combined requirements must reflect a plan that is consistent with the chains projections.

Monczka (2012) defines Supplier Partnering as the process by which supply chain partners adopt a high level of purposeful cooperation to maintain a trading relationship over time. The relationship is bilateral; both parties have the power to shape its nature and future direction over time. Mutual commitment to the future and a balanced power relationship are essential to the process. To maintain pace with current worlds’ increased competition, supply chain partners are becoming more dependent on one another and creating long-term relationships. This is mainly for best commercial advantage as they as the supply chain partners can build flexibility, which contributes to the supply chain’s effectiveness. Supplier collaborating also encourages supplier development, which improves the supplier’s performance and capabilities in one or more of the following areas: cost, quality, delivery, time-to-market, technology, environmental responsibility, managerial capability and financial viability (Krause, Handfield and Tyler, 2017)

This study therefore tries to establish how demand forecasting as a concept can be incorporated in supply chain operations and its effect towards achieving supply chain efficiency and effectiveness hence overall performance.

1.2 Statement of the problem

Ray et al. (2016) suggest that supply chains face serious performance challenges in both out of stock situations as well as increased overall marketing costs. This challenge is attributable to the problem of managing the demand of today’s customers as well as the dynamics of the supply chains which hinder good visibility all through the supply chain. This raises issues of supply chain efficiency and effectiveness. In the resource dependence theory by Pfeffer et al. (2013) concluded that organizations can be both efficient and effective, neither efficient nor effective, effective but not efficient, or efficient but not effective. Therefore, if a supply chain is neither efficient nor effective, it is likely to have high costs and poor inventory optimization; where it is effective but not efficient, it is likely to meet stakeholder expectations but at high costs and where its efficient but not effective, it is likely not to meet stakeholder expectations but minimize costs.

While there is an increase of scholarly materials and reports on improving marketing performance through demand forecasting, the little research done so far report inconclusive results. For instance, while Moser, Isaksson, and Seifert ( 2017) argued that organizations could improve their supply chains’ performance through demand forecasting, Reuben, John, and Dittmann (2017) reported that even the best supply chain planning can be undermined and marketing performance hence determined by other factors.

Caffrey (2014) concludes that with enhanced forecasting and demand forecasting processes, supply chain partners can effectively improve their supply chains’ performance by building more responsive and flexible supply chains and avoid stock outs, unutilized plant capacities as well as eliminate waste all of which reduce their supply chains performance. Cecere (2014) suggests that while many companies believe supply chain efficiency and supply chain effectiveness to be the same, the most efficient supply chain is not necessarily always effective.

The foregoing studies were conducted in a predominantly western context without consideration of differences yet organizations exist within an environmental context. Therefore, it is not clear whether the same demand forecasting factors influence a similar FMCGs supply chains in a developing environment such as Nigeria where economic factors such as marketing costs and unreliability are still relatively high. This study was therefore relevant to on-going debate related to improving supply chain effectiveness and efficiency.

1.3 General Objective

The general objective of the study was to find out the contribution of demand planning towards improving marketing performance.

1.4 Specific Objectives

The study sought to achieve the following specific objectives.

1.4.1. To find out the role of forecasting on inventory optimization.

1.4.2. To find out the role of supplier collaboration on inventory optimization.

1.4.3. To find out the role of demand forecasting influence on Marketing cost performance.

1.5 Significance of the Study

1.5.1 Supply Chain Practitioners

Purchasers, Logisticians and other employees working along the Supply Chain in which their employer plays a part would be interested in understanding how demand forecasting can improve the performance of their supply chain as well as enlighten them on the ripple effect of their actions on the wider supply chain.

1.5.2 Suppliers and Buyers

Supplying and buying organizations such as FMCGs, providers of raw materials and the distributors of the finished products would learn how to optimize their supply chain through supply chain partnering, forecasting as well as information sharing.

1.5.3 Supply Chain Consultants and Advisers

Supply chain consultants will be better informed in advising their clients on whether demand forecasting and associated activities would be beneficial in their clients’ models as well as what changes would be necessary to effectively implement it to achieve the most advantage.

1.5.4 Production Professionals

Production technocrats would learn the benefits of incorporating demand forecasting and factor the activities, timelines and recommendations from both downward and upward members of the supply chain in scheduling their production cycles which in effect will lead to an efficient and effective supply chain.

1.5.5 Chief Executives of Organizations

Organizations’ leadership under influence of positive effects of demand forecasting could factor it in their strategic plan in pursuit of cost leadership, differentiation or focus strategies and implement the concept in their organizations using it as a pillar of supply chain success and by extension the organizations’ success.

1.5.6 Supply chain Trainers, Students and Future Researchers

Supply chain lecturers and trainers could disseminate this to their students who would then apply the skills at work scenarios to improve the performance of the supply chains they will participate. Future researchers may as well have this study as a base for their research activities.

1.6 Scope of the Study

The research study focused on FMCGs in Abuja County in Nigeria. Abuja City is the capital city of Nigeria and is home to the majority of FMCGs with presence in Nigeria. It is the leading destination of FMCGs pursuing presence in Eastern Africa. (Muhatia, 2017)

1.7 Definition of Terms

1.7.1 Supply Chain

Is a series of integrated organizations that share information and coordinate physical execution to ensure a smooth, integrated flow of goods, services and information through the pipeline (Coyle, Langley, Novack, and Gibson, 2013).

1.7.2 Supply Chain Management

The act of optimizing supply chain activities along the supply chains (Janvier and Mbang, 2012)

1.7.3 Sales and Operations Planning

A cross-functional process aimed at aligning the commercial processes of sales and marketing with the operational processes of supply (Cecere, 2015).

1.7.4 Fast Moving Consumer Goods

Also referred to as Consumer-Packaged Goods (CPG) are products that are sold quickly and at relatively low cost (Malhotra, 2014).

1.8 Chapter Summary

This chapter has presented the study background and stated the problem. Further, it has put forward the objectives which it will aim to achieve and considered the significance of the study to the various stakeholders. Subsequently, it has provided the scope and the operational terms that will be adopted.

The next chapter reviews previous literature available on the study. Chapter three describes the methodology that will guide the study.