Four ways to improve inventory planning that go beyond technology

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Consumer packaged goods (CPG) companies can’t seem to take a break. Market volatility shakes the C-suite and the front lines, and the only thing that is more stable is the instability of supply and demand. The McKinsey & Co. team hit the nail on the head when they said, “Existing planning capabilities will not be sufficient to [CPG] organizations to keep pace over the next decade. Existing planning techniques are no longer sufficient today.

McKinsey analysts argue for “end-to-end planning transformation.” And while many things need to change in the planning process if we are to overcome these prolonged inventory shortages, the biggest change that needs to occur within CPG businesses right now is in demand forecasting.

Many CPG executives say they believe that extracting and replacing forecasting and planning systems with newer, more capable versions will provide them with more accurate insights into inventory throughput or customer demand. Yet the biggest mistake CPG executives can make right now is optimizing internal systems thinking that this single action will improve inventory performance and service levels “on time, in full” (OTIF) . You can’t increase consumer satisfaction just by upgrading your technology platforms. Using new tools to do things the same way leaves you exactly where you were yesterday: unable to detect, let alone anticipate, changes in demand. You will always struggle to produce and stock enough merchandise or the right SKUs.

So if you’ve embarked on this path of technological modernization to improve your planning capabilities, also make sure:

Reframe your reality. Inventory decisions should be based on more recent and relevant data, not speculation. In this climate, long-term forecasts will not necessarily solve the current imbalances between supply and demand. Future success will depend more on short-term demand sensing capabilities – something not widely adopted even two years ago. But it has become abundantly clear that relying on historical demand trends that anticipate demand patterns for six, 12 or even 18 months from now will leave you today either overstocked or understocked. -stock. Last year’s summer vacation season will not be the same this year. In fact, you may see seasonal demand start and end earlier than before or extend well past its typical expiration date.

Explore your data from a different angle. As more companies face unprecedented supply chain challenges and experiment with omnichannel options, CPG leaders must look beyond typical historical trends. Again, festive events such as Thanksgiving or New Years could still be a primary demand driver for CPG inventory. But a sudden rise in inflation, a stimulus payment or an unexpected tax bill could impose spending limits. Consumers may be looking for a different quality or quantity of products than before.

Examine your whole way of doing things. Old forecasting systems and models don’t work in a world where something new disrupts the supply chain every day. Considering consumer spending patterns from a year ago without accounting for data anomalies, changing consumer patterns and new demand signals will significantly skew future forecasts. Whether or not you replace back-end planning systems, you need to re-evaluate back-end processes and adopt a new connected approach for all functions that plan or influence demand – one that facilitates a continuous and timely feedback loop based on a single, unified demand forecast.

Adopt artificial intelligence (AI) and machine learning (ML) technologies. AI and ML are paving the way for companies to model large volumes of data in a scalable way, enabling external leading indicators – not just historical data – to make demand-informed business decisions. The goal is to simultaneously solve real business problems and mitigate new ones, so that it becomes easier to meet customer and consumer demands over time. However, I don’t need to tell you how difficult it can be for humans to identify and make sense of all the drivers of demand, especially at the speed needed for today’s expectations. .

In other words, you need to invest in new technologies to improve your planning capabilities. But it has to be technology that allows you to approach scheduling in a completely different way than you had before, and not just an “upgrade” of the same scheduling systems you had in the past. course of the last decade.

Look for an intelligent software platform that can look beyond the past and sense what’s happening here and now. It’s even better if you can find an AI platform that understands current demand drivers, can predict new changes, and can explain why historical demand patterns may or may not repeat themselves.

The only way to overcome these inventory shortages is to be able to accurately predict demand. And we can only do this if we feed our planning systems (new or old) with the right information from algorithms capable of anticipating demand. A planning system is only as smart as its demand forecast. So if you’re making just one change to inventory planning, change your approach to planning. Then find a smart technology solution that can fully support this approach.

David Kane is Senior Director of Supply Chain Solutions Strategy at antuit.ai.

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