Cradle to Grave

Over the last six years, the number of items has proliferated by 30 percent. In the same timeframe, shipments rose 2 percent with the average sales per item falling 22 percent*. As a result, managing the supply chain is more complex. With the lengthening of the product tail, the demand signal is lumpier and more erratic. While companies are still looking at improving traditional forecasting technologies and the rules for forecast consumption, I think it is time to take a different stance:

1. Item Rationalization. Rationalize the products in the line. Many do not know the cost of complexity with the increase of items; and instead of introducing variety to the shopper, many companies have confused the shopper resulting in the purchase of more compelling, less complex product portfolios. So, as companies manage stage-gate processes for item introductions, it is a good time to also design and implement processes to focus on item rationalization by market.
2. Test and Learn. To aid item rationalization, test and learn concepts combined with cognitive reasoning is useful to test the market basket impacts of portfolio shifts/market. While marketing and product development programs have traditionally been about the additional item, companies that are in step with the market understand that it is about having the right assortment in the right markets. This requires analytics.
3. Demand Sensing. As the tail of the supply chain lengthens, demand sensing matters more than ever. The longer the tail, the more important short-term forecasting, and the less effective traditional forecasting techniques are in driving replenishment. The redefinition of inside-out to outside-in processes grows in importance. If you are scratching your head, this means the use of POS data and demand sensing to reduce the latency of the demand signal to plan better in-step with the market. Traditional order management to distribution requirements planning adds latency and distorts the signal. This is more critical with a longer tail.
4. Demand Translation into Production Planning. In addition to demand sensing, with the product tail lengthening, the independent item demand must be translated into a segmented production plan to reduce cycle stock. Automation of demand sensing into production planning is critical to manage the lumpier, less predictable demand patterns.

2015 is a year for belt-tightening. Volume has slowed, and most are struggling with new product launch processes. Start with product rationalization and the identification of product opportunities that stem from the consolidation of product lines. If they cannot be reduced in complexity, it is time to redesign supply chain processes. Unfortunately, today, most companies have neither.  

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*Data sourced from the Terra Technology 2014 Benchmarking Study