The study looks at the state of demand planning performance in North America and how it differs in Europe, encompassing $250bn in annual sales from 14 multinational consumer products companies, with 9 billion cases and more than 1 billion item-warehouse combinations.
Forecast performance against the industry average
It allows firms to compare their forecast performance against the industry average and top performing companies.
Robert Byrne, CEO, Terra Technology, told FoodProductionDaily, this is the first year the public report, now in its sixth year, provides a comparison with Europe.
“European supply chains serve a diverse population across many countries, with numerous languages and cultural differences. As a result, networks in Europe are considerably more complex than those in North America,” he said.
“On average, Europe had 2.5 times as many locations and items, and half the sales per item compared to North America. The additional complexity and lower sales per item made forecasting more challenging in Europe. While weekly error was 6% points higher in Europe, bias was more than double.
“Similar to North America, items in the tail and new introductions were key drivers of bias. Bias, which represents the degree of consistent over-forecasting, was three times higher for items in the tail than for top sellers; and three times greater for new products.”
FPD recently reported transportation issues are a top concern for many CPG companies, according to BCG (Boston Consulting Group) and the Grocery Manufacturers Association (GMA).
Transportation is still largely planned in spreadsheets
It highlighted how logistics is a major spend for manufacturers, accounting for roughly 5%-15% of cost of goods sold; yet, transportation largely remains unplanned beyond the operational execution window of 1-5 days. Almost every large cost centre in supply chain has benefited from sophisticated software planning systems, but transportation is still largely planned in spreadsheets using only historical data.
“The concept of relying on historical data for volatile markets is flawed. Study data shows traditional demand planning tools are struggling to maintain the status quo, let alone achieve the step-change in performance and productivity that senior management seeks. To predict what customers will order, we need to look inside the supply chain to see what is actually happening,” added Byrne.
“The rate of adoption of new technologies is much slower than industry requires. The traditional approach of people, process and technology is fine in a slow-moving technology environment, but inverts when there are rapid advances.
“With its roots in cost efficiency, supply chain tends to laud the pursuit of incremental change from continuous improvement programs. The drive for increased productivity is starting to shift this somewhat, but there is still a long way to go.”
According to Byrne, two major forces; persistent item proliferation and market volatility will be a major challenge for companies.
“At the same time, focus on financial returns will raise the drive for productivity. Just as the financial industry adopted automated trading to boost productivity, revenue and profits, so too will demand planning,” he said.
“Planners currently spend more than 75% of their time on manual tasks in Excel. This is not sustainable. Demand planning is being reimagined to automate and streamline manual tasks and free planners to focus on strategic activities that machines are not able to do.”
The company is now working to extend the program to include inventory decisions - to highlight best practices in stocking policies, the relationship between volatility and capital invested in inventory and include insight into service related metrics like case fill and lead time.
“Our customers operate globally so our software is also being run in 160 countries around the world. Forecasting is even harder in these markets than in Europe and North America but is equally important to shareholder value,” added Byrne.