Executive Briefings

Demand Sensing Needed to Break Through 'Demand Planning Performance Ceiling,' Study Suggests

So-called "growth through innovation" strategies continue to drive supply chain complexity at a rapid pace, making it harder for businesses to forecast, according to the 2014 Terra Technology Forecasting Benchmark Study. Data shows that demand planning has reached a performance ceiling with forecast value-added declining for a second year.

Demand Sensing Needed to Break Through 'Demand Planning Performance Ceiling,' Study Suggests

Terra's fifth annual study analyzes demand planning performance for 13 multinational consumer products companies. It encompasses almost $200bn in annual sales from North American and European businesses, with seven billion cases and 800,000 item-location combinations.

Robert F. Byrne, CEO of Terra Technology, says, "The steady stream of new product introductions combined with economic volatility and changing consumer preferences renders traditional forecasting methods obsolete. Our study confirms demand sensing as an enabling technology to break through the demand planning performance ceiling."

Key findings for North America include:

Network complexity continues to increase at a rapid pace. The number of items for sale has increased by 30 percent since 2009. During the same period, shipments have grown by 2 percent causing average sales per item to fall by 22 percent.

• The rate of new product introductions is considerably higher, with more than twice as many new items introduced over five years as existed in 2009; 85 percent of those have been discontinued.

• Forecast value-added trends downwards again, losing 1 percent for an average of 12 percent; value-added measures the impact of demand planning efforts to improve a naïve statistical forecast.

• The long tail continues to be a challenge for consumer products companies with the slowest-moving 50 percent of items contributing only 1 percent of sales while the fastest-moving 10 percent of items generate 75 percent.

• Demand Planning is essentially stuck, with error hovering around the 50-percent mark since the beginning of the study.

• Demand Sensing provides a step-change in performance, cutting average forecast error by 38 percent across all items encompassed in the study and by 34 percent for new products.

The distinct regional requirements in Europe require more complex supply chains. Average sales volume per item was two times lower than in America, resulting in higher bias and forecast error.

This year’s study has been expanded to include findings on productivity. Participants unanimously report that planners spend too much time on mundane number-crunching tasks when that time should really be invested in more strategic activities. So it comes as no surprise that of the companies with higher than average forecast value-added, 65 percent have lighter workloads in terms of the number of products assigned to each full-time demand planner.

“We are thrilled that our customers find the study so valuable,” says Byrne. “The study’s insights allow member companies to compare their planning performance to peers and between business units, brands or even specific items within their organization. This has resulted in a number of tangible initiatives at member companies to reduce supply chain complexity, improve service and lower costs.”

The public version of the benchmark report captures the state of demand planning performance in North America, allowing readers to compare their forecast performance against the industry average and top performing companies. Terra publishes this information to contribute to the advancement of supply chain planning and encourage the pursuit of forecast excellence across all industries.

Source: Terra Technology

Terra's fifth annual study analyzes demand planning performance for 13 multinational consumer products companies. It encompasses almost $200bn in annual sales from North American and European businesses, with seven billion cases and 800,000 item-location combinations.

Robert F. Byrne, CEO of Terra Technology, says, "The steady stream of new product introductions combined with economic volatility and changing consumer preferences renders traditional forecasting methods obsolete. Our study confirms demand sensing as an enabling technology to break through the demand planning performance ceiling."

Key findings for North America include:

Network complexity continues to increase at a rapid pace. The number of items for sale has increased by 30 percent since 2009. During the same period, shipments have grown by 2 percent causing average sales per item to fall by 22 percent.

• The rate of new product introductions is considerably higher, with more than twice as many new items introduced over five years as existed in 2009; 85 percent of those have been discontinued.

• Forecast value-added trends downwards again, losing 1 percent for an average of 12 percent; value-added measures the impact of demand planning efforts to improve a naïve statistical forecast.

• The long tail continues to be a challenge for consumer products companies with the slowest-moving 50 percent of items contributing only 1 percent of sales while the fastest-moving 10 percent of items generate 75 percent.

• Demand Planning is essentially stuck, with error hovering around the 50-percent mark since the beginning of the study.

• Demand Sensing provides a step-change in performance, cutting average forecast error by 38 percent across all items encompassed in the study and by 34 percent for new products.

The distinct regional requirements in Europe require more complex supply chains. Average sales volume per item was two times lower than in America, resulting in higher bias and forecast error.

This year’s study has been expanded to include findings on productivity. Participants unanimously report that planners spend too much time on mundane number-crunching tasks when that time should really be invested in more strategic activities. So it comes as no surprise that of the companies with higher than average forecast value-added, 65 percent have lighter workloads in terms of the number of products assigned to each full-time demand planner.

“We are thrilled that our customers find the study so valuable,” says Byrne. “The study’s insights allow member companies to compare their planning performance to peers and between business units, brands or even specific items within their organization. This has resulted in a number of tangible initiatives at member companies to reduce supply chain complexity, improve service and lower costs.”

The public version of the benchmark report captures the state of demand planning performance in North America, allowing readers to compare their forecast performance against the industry average and top performing companies. Terra publishes this information to contribute to the advancement of supply chain planning and encourage the pursuit of forecast excellence across all industries.

Source: Terra Technology

Demand Sensing Needed to Break Through 'Demand Planning Performance Ceiling,' Study Suggests