2014 Forecasting Benchmark Study Reveals Increased Complexity Limits Demand Planning Performance

Confirms Demand Sensing Technology as a Proven Catalyst for Change

NORWALK, Conn.--()--The newly published 2014 Terra Technology Forecasting Benchmark Study finds that “growth through innovation” strategies continue to drive supply chain complexity at a rapid pace, making it harder for businesses to forecast. Data shows that demand planning has reached a performance ceiling with forecast value-added declining for a second year.

“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.”

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

“It’s an exciting time in supply chain and I think we are close to a technology revolution. While driverless cars and drone deliveries are getting much of the press coverage, supply chain planning is finally starting to evolve,” says Robert F. Byrne, CEO of Terra Technology. “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% since 2009. During the same period, shipments have grown by 2% causing average sales per item to fall by 22%.
  • 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% of those have been discontinued.
  • Forecast value-added trends downwards again, losing 1% for an average of 12%; 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% of items contributing only 1% of sales while the fastest-moving 10% of items generate 75%.
  • Demand Planning is essentially stuck, with error hovering around 50% mark since the beginning of the study.
  • Demand Sensing provides a step-change in performance, cutting average forecast error by 38% across all items encompassed in the study and by 34% for new products.

The distinct regional requirements in Europe require more complex supply chains. Average sales volume per item was 2 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% 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.

Request your copy of Terra’s Forecasting Benchmark Study.

About Terra Technology

Terra Technology uses better mathematics to sense demand, optimize inventory and predict transportation and warehousing requirements for some of the world’s best-known companies including Shell, Procter & Gamble, Unilever, Mondelēz International, Kimberly-Clark, AkzoNobel, Kraft Foods, General Mills, ConAgra Foods, Kellogg, Campbell Soup and others. Terra invented demand sensing in 2002 and offered the first solutions to use retailer data systematically to improve supply chain efficiency, enhance service, cut inventory and reduce waste. Terra’s solutions are used in more than 160 countries. Information on how Terra enables a truly integrated supply chain can be found at terratechnology.com.

Contacts

PAN Communications
Maribel Lopez, +1 617 502 4339
PAN-Terra@pancomm.com
or
Terra Technology
John Lash, +1 203-847-4007 x112
john.lash@terratechnology.com

Release Summary

The newly published 2014 Terra Technology Forecasting Benchmark Study finds that “growth through innovation” strategies continue to drive supply chain complexity at a rapid pace.

Terra Technology