Calming the Storm
Understanding the impact that the weather potentially has on consumer demand for bottled water is critical in the high volume, low inventory bottled water product category. The heat of summer plus the occurrence of storms and natural disasters increase demand. In fact, weather-driven demand can account for up to 20 percent to 30 percent of total demand during the summer.
Optimizing inventory in an industry characterized by seasonal fluctuations and shifts in demand caused by diverse weather conditions is not an easy task. That is why Nestle Waters turned to Planalytics to help improve its forecasting accuracy.
A Master Plan
Nestle Waters North America is the leading producer of bottled water products in the United States. Its brands include Arrowhead, Calistoga, Deer Park, Ice Mountain, Nestle Pure Life, Ozarka, Poland Spring and Zephyrhills.
To accommodate the significant fluctuations in consumer demand, it is necessary to plan ahead and build inventory levels as manufacturing capacity cannot dynamically scale to support short-term spikes in demand. "We don't carry a lot of inventory and it is critical for us to accurately forecast product demand to maximize revenue and profitability," says John Seubert, national director of customer supply chain management, Nestle Waters North America. "We were very interested in increasing our understanding of how weather impacts our business and using this knowledge to improve our forecasting accuracy and optimize our production and inventory levels."
Back to the Future
Nestle Waters turned to Planalytics, the provider of weather-based business intelligence, to measure and forecast the impact of weather on consumer demand for products and services. "We selected Planalytics because they have sophisticated business weather intelligence and forecasting tools, and they demonstrate a true partnership approach," says Seubert.
Planalytics Impact reveals the long-range effect of future weather on consumer demand by specific product, location and time by using artificial intelligence modeling of historical business results and weather data. Nestle Waters took a deliberate approach to integrating weather-related intelligence from Planalytics Impact into its forecasting process. The company initially experimented with and monitored the data generated by Impact, comparing the generated results to actual demand. Once Nestle Waters had the experience with and confidence in the data, it began applying the results in its top-line forecasting and planning process.
Complementing Planalytics' long-range planning tools with its short-range decision support tools enables companies to update their forecasts and plan as necessary when more current data is available. The increased visibility to future weather patterns increases the overall accuracy of demand forecasts. "Through Planalytics, we can anticipate extreme weather conditions, and may adjust our production and inventory in anticipation of a strong sales period," says Randy Kitchin, national demand and supply planning manager, Nestle Waters North America. "As the weather starts getting hot, we have appropriate inventory to serve our customers' increased needs."
As Nestle Waters became more experienced with Planalytics' forecasting tools, it expanded its use by sharing the output with its sales organization to generate low-level forecasting. The next step included the development of a custom-built decision tool that was shared with its customers (retailers) for collaborative planning, forecasting and replenishment (CPFR).
"Sharing the power of Planalytics forecasting tools with our customers improved our relationships and helped influence them to build more inventory to take advantage of increased consumer demand during favorable weather, especially in isolated regions," says Seubert.
Building Consumer Confidence
During the past year, Nestle Waters has also been using Planalytics Severe Weather Service. With the advanced warning of hurricanes, Nestle Waters built inventories in specific geographies and used the forecast to help with decisions regarding storm preparation and safety stocks for its retail clients. Nestle Waters also uses the Severe Weather Service for logistics planning. As soon as the National Weather Service (NWS) announces a hurricane, truck availability going into that region diminishes, which in turn drives up the cost of the trucks and significantly limits availability.
"Receiving advanced notice prior to the news media and NWS announcements allows us to reserve transportation while it is still available," says Kitchin. Not only does it reduce costs for Nestle Waters, but it also helps the company to better serve its customers and have confidence in its ability to provide product when it's most needed.
"With the improved forecasting accuracy generated by Planalytics, Nestle Waters increased revenues without increasing its inventory levels," says Seubert. "The Planalytics tools improve our inventory planning and give us greater comfort that we have the right inventory at the right location at the right time."
With increased experience and positive results with the Planalytics tools, Nestle Waters plans to expand the number of customers that it shares information with and to utilize the short-term forecasting tools more extensively.