We are living in times of significant change, not least of which is the consumer’s control over so many aspects of business operations. Companies must constantly innovate to keep up with and satisfy fast-changing consumer demand. Is your demand management process adequately supporting this innovation requirement? That support for innovation is called into question by the findings of the recently released JDA Vision 2015 Supply Chain Market Study. The study is based on a global executive survey with over 250 responses representing a broad selection of industries across 17 countries.
Demand management as a discipline has been around for a long time, as have computer systems used to forecast demand. They were originally designed to keep factories humming, pumping out those products most in demand. But the results from the market study suggest that some of the most pressing issues in today’s fast-paced, consumer-driven marketplace, such as new product introductions, promotions and events, are not being well served by those older processes or technologies.
With the consumer firmly in control of the buyer-seller relationship, demand has become more volatile and fickle, placing a premium on agility and innovation, with the need for more frequent new products introductions. Through ecommerce and mobile search capabilities, consumers today are also much more price-aware and have been conditioned to shop for deals, thus making promotions a much bigger portion of most merchandising plans. Thus, you would assume that manufacturers and retailers would now be employing emerging best practices and the latest technologies to forecast demand for new product introductions and promotions or events. According to the survey results, however, this is apparently not happening.
The study found that over half of the responding companies still rely on their sales, marketing or merchandising teams to provide forecasts for new product introductions (53%) or promotions and events (52%). Typically, these teams are using historical sales numbers for their forecasts, not forward-looking predictive analytics. In fact, less than 40 percent of respondents say they are using modeling or predictive performance technologies to forecast sales for new product introductions. Worse yet, a miniscule three percent say they are using algorithmic technologies to develop marketing models for promotions and events. It appears many are reluctant to give up the old and familiar ways, and thus are not adopting the new predictive technologies that will separate winners from losers in today’s fast-changing and volatile marketplace.
Not using modern predictive technologies is just one of the challenges facing many companies today. When asked for their top demand management challenges, the clear leader, at over 65 percent, was the disconnect between the Sales and Operations Planning (S&OP) process and detailed demand plans. S&OP has become a strategic process for many companies as they attempt to better balance consumer demand with inventory and production plans in light of increasing demand volatility, which was the second most-cited challenge in the survey. The third most frequently cited challenge was managing new product introductions. Thus, the executives feel that volatility, new product introductions and lack of integration are their biggest challenges, and thus are what they most need to focus on this year.
Given the criticality of the above challenges, it is no surprise that the top initiatives the respondents are taking in 2015 are in direct response to those challenges. Top among these is integration of a best-in-class S&OP process with their demand planning process. Clearly, executives realize they must better align their organizations around ever-changing demand signals in order to compete in today’s volatile marketplace.
Optimizing the new product introduction process was the second most-cited initiative, reflecting both the challenges in this area and the need for more innovation to compete in today’s consumer-driven marketplace. Tied for second place was improving exception management, a clear offshoot of the need to better deal with volatility and improve customer service.
The fourth most-cited initiative is improving promotion management; again, a direct response to one of the key challenges companies are facing. Companies will not be able to improve promotion effectiveness, however, if they continue to use traditional planning processes and technologies. New, innovative modeling and predictive analytics systems are needed to better align promotions and new product introductions with actual demand.
Somewhat surprisingly given all of the hype around social networks and big data, leveraging social data for demand planning was the least-cited initiative for this year. Perhaps it is tough to take on newer, less understood technologies when there are so many challenges yet to be solved in the basic blocking and tackling of adapting to today’s volatile, consumer-driven marketplace. However, it is expected that the use of social data to drive demand will quickly rise to be a top initiative in the near future.
The questions I will leave you with are: are you experiencing the same challenges as the companies in our report? Will you be taking the same initiatives? And if so, will your existing planning processes and systems be able to learn the new tricks of forward-looking modeling and predictive analytics that will be so vital to your success from now on?
To hear more of my comments on key demand management issues and how JDA can help, watch this brief video.
For a look at the key charts and graphs outlining the findings of the report, access the infographic.
To learn more about the demand planning issues and initiatives addressed in the report, read the full report.