Real-time data and AI vital to development of digital supply chains
Improvements in data gathering and analysis will lead to improvements in understanding and forecasting product demand
According to a study by E2open, the use of real-time information and artificial intelligence to sense demand dramatically cuts forecast error by an average of 36% across all products in the study.
If confirmed, this could be important in a post-COVID environment as Reuters Event Supply Chain research has found that the biggest supply chain bottleneck supply chain professionals are seeing due to COVID-19 is a lack of clarity on customer demand.
The study also notes that over the last four years, safety stock has grown by 14%, underlining a growing trend that will accelerate in the current environment where companies are focusing more on resilience and holding buffer stock to reduce the probability of the shortages that have been widely seen recently.
The study claims, however, that the combination of inventory optimization and demand sensing is twice as effective at cutting safety stock, significantly improving inventory productivity.
New insights into growth through innovation strategies reveal that while product innovation accounts for one-fifth of annual sales, each new item generates only half the sales of existing items. This lowers the overall portfolio productivity, as well as profitability and return on working capital. Companies with goals to make items work harder for them can offset this by
The report also suggests that as existing stock items sell at a far stronger rate than new items that promoting growth of existing items, better supporting sales of new items by accurately forecasting demand for top sellers and through strong governance to quickly cut items that fall short of expectations can be effective.
“What separates leaders from the pack is the use of artificial intelligence to systematically create the best forecast at any time horizon and better predict what will sell instead of what they simply hope will sell,” said Michael Farlekas, president and chief executive officer at E2open. “This is a game changer in that it provides the agility to serve customers in fast-moving markets and the resiliency to manage uncertainty and disruption.”
“The true engine of growth for new introductions is the small percentage that don’t end up in the tail. These items generate disproportionate sales and are important to properly support to maximize returns on innovation,” said Robert Byrne, vice president of supply chain at E2open. “The first takeaway for business leaders is to continue growth through innovation but quickly cut new items that fall into the tail so as not to dilute portfolio productivity. The second is to support your winners with forecasts that reflect current realities on the ground. The study shows that within two weeks of launch, demand sensing provides a step-change in accuracy which continues to deliver over the product lifecycle.”