As part of On Semi’s relationship with its key customers, every week, the customers provide On Semi with weekly forecasts for the next year; in return, On Semi maintains inventory at/near the customer location, up to a target level (say, 2 weeks) based on that forecast. The actual inventory levels are almost always higher than what the target would suggest.

The objectives of this study were to:

• Isolate and study the effect of forecast error and bias on inventory in supply chain
• Characterize patterns of forecast and consumption that lead to inventory problems
• Use the understanding of these patterns to
  • Judge forecasts
  • “Right-size” inventory targets