Executive Briefings

Traditional Demand Planning Not as Accurate as Demand Sensing, Report Says

Traditional demand planning systems have reached their limits, with key forecasting metrics remaining essentially flat for the past five years, says Terra Technology's sixth annual Forecasting Benchmark Study.

The data confirms that companies sensing demand achieve a step-change in performance, consistently doubling overall forecast value-added and cutting error by 37 percent. The study is the most comprehensive report of demand planning performance, encompassing $250bn in annual sales from 14 multinational consumer product manufacturers, nine billion cases of goods and more than a billion item-warehouse stocking combinations.

The study finds that innovation is driving complexity, not sales. The number of active items rose by 32 percent since 2010, compared to a lift of only 4 percent in sales. Average sales per item dropped 22 percent, making it harder to forecast and more expensive to serve customers. More concerning is the rapid pace of introductions, with the number of items offered for sale nearly tripling over five years; 82 percent of them have since been discontinued.

Most of this innovation adds to an already long product tail, with only one in a thousand new items becoming a top seller. As a result, the long tail continues to grow and now accounts for 81 percent of all items. Furthermore, products that start off in the tail, stay there and none of them escape to become top sellers. These findings raise the question, “What is the true cost of innovation?”

New product introductions and items in the tail, both of which are particularly challenging for conventional planning methods, had a four times higher forecast value-added with Demand Sensing. This helps improve return on innovation, supporting sales of “winners” without tying up cash in unproductive inventory for items that fall short of expectations.

“Accuracy matters. Demand predictions underpin almost every major business decision and forecasts drive key financial metrics that impact shareholder value,” says Robert F. Byrne, CEO of Terra Technology. “Far from being an academic exercise, the pursuit of forecast excellence has become strategic. The statistics in this report will help companies make data-driven decisions to improve performance and gain insight into what industry leaders are doing to stay well ahead of the pack.”

The public version of the study captures the state of demand planning in North America and how it differs in Europe, allowing companies to compare their forecast performance against the industry average and top performing companies.

A copy of the study can be requested from the Terra web site.

Source: Terra Technology

The data confirms that companies sensing demand achieve a step-change in performance, consistently doubling overall forecast value-added and cutting error by 37 percent. The study is the most comprehensive report of demand planning performance, encompassing $250bn in annual sales from 14 multinational consumer product manufacturers, nine billion cases of goods and more than a billion item-warehouse stocking combinations.

The study finds that innovation is driving complexity, not sales. The number of active items rose by 32 percent since 2010, compared to a lift of only 4 percent in sales. Average sales per item dropped 22 percent, making it harder to forecast and more expensive to serve customers. More concerning is the rapid pace of introductions, with the number of items offered for sale nearly tripling over five years; 82 percent of them have since been discontinued.

Most of this innovation adds to an already long product tail, with only one in a thousand new items becoming a top seller. As a result, the long tail continues to grow and now accounts for 81 percent of all items. Furthermore, products that start off in the tail, stay there and none of them escape to become top sellers. These findings raise the question, “What is the true cost of innovation?”

New product introductions and items in the tail, both of which are particularly challenging for conventional planning methods, had a four times higher forecast value-added with Demand Sensing. This helps improve return on innovation, supporting sales of “winners” without tying up cash in unproductive inventory for items that fall short of expectations.

“Accuracy matters. Demand predictions underpin almost every major business decision and forecasts drive key financial metrics that impact shareholder value,” says Robert F. Byrne, CEO of Terra Technology. “Far from being an academic exercise, the pursuit of forecast excellence has become strategic. The statistics in this report will help companies make data-driven decisions to improve performance and gain insight into what industry leaders are doing to stay well ahead of the pack.”

The public version of the study captures the state of demand planning in North America and how it differs in Europe, allowing companies to compare their forecast performance against the industry average and top performing companies.

A copy of the study can be requested from the Terra web site.

Source: Terra Technology