By John Karolefski
Through a special arrangement, what follows is an excerpt of a current article from CPGmatters, a monthly e-zine, presented here for discussion
Procter & Gamble is deploying demand sensing software as part of a global initiative to further improve short-term forecasting accuracy; to lower safety stock and increase the competitive advantage generated from its supply chain.
The software is being used in 20 percent of P&G's businesses with the rollout scheduled to be complete in 2010. Using the Demand Sensing software from Terra Technology has yielded some impressive early results. Forecast error has decreased more than 30 percent and safety stock has decreased more than 10 percent, saving millions of dollars in inventory.
"The reduction in safety stock has been accomplished without increasing out-of-stocks," said Nils Mueller, IDF Initiative Manager, SNS Demand Planning Services at the Cincinnati-based company. "In addition to these savings, we anticipate further benefits from increased productivity in the workforce. Demand planners, free from emergency changes due to inaccurate short-term forecasts, are able to focus on the longer term, analyzing long term trends and business intelligence about the marketplace and consumer behavior."
Terra Technology introduced the first demand sensing solution for consumer products companies in 2002. Terra's Demand Sensing (DS) analyzes downstream data daily and creates a forecast that responds to what is happening right now, not just historical trends. Forecast error typically drops by up to 50 percent.
For consumer products companies, DS is the first step toward building a Demand-Driven Supply Network, enabling reductions in safety stock, transportation costs and unplanned manufacturing changeovers. Promotional effectiveness improves and sales revenue and profitability increase. Terra's Demand Sensing solution is a bolt-on addition to traditional demand planning systems and is completely compatible with demand planning systems from all major ERP and supply chain vendors.
"P&G is focused on winning at the two critical 'moments of truth,' said Mr. Mueller. "The First Moment is when the shopper is in the store and has the opportunity to choose which product to buy. The Second Moment is when the consumer uses that product. We must delight and win at both Moments of Truth. Supply chain excellence is critical to winning at the First Moment of Truth."
Discussion Questions: What do you think of the potential of demand sensing technology to improve forecast accuracy and reduce inventory? What are the challenges of any solution looking to predict shifts in customer demand before they occur?