E2open announced the release of its 2019 Forecasting and Inventory Benchmark Study, an in-depth analysis of the state of demand and inventory management that allows firms to compare their performance against peers and best-in-class companies. As the largest study of its kind, this annual report provides the “state of the nation” for forecasting performance across industries and uses data to explore strategies, decisions and implications related to growth, agility, resiliency and profitability. Unlike other reports, this study is unique in that it uses operational data — rather than survey responses and anecdotes — to generate actionable insights for business leaders. A key finding is that the use of real-time information and artificial intelligence to sense demand dramatically cuts forecast error by an average of 36% across all products in the study, allowing companies to better serve customers, capture growth opportunities and carry less inventory.
“Demand is the heartbeat of the supply chain and companies that get it right have an inherent advantage over their peers,” said Michael Farlekas, president and chief executive officer at E2open. “Each year we publish this study as a reliable benchmark to understand the art of the possible and help companies in the pursuit of planning excellence. What separates leaders from the pack is the use of artificial intelligence to systematically create the best forecast at any time horizon and better predict what will sell instead of what they simply hope will sell. This is a game changer in that it provides the agility to serve customers in fast-moving markets and the resiliency to manage uncertainty and disruption.”
In addition to forecasting, the study analyzes inventory productivity, including capital invested in finished goods and methods companies use to improve inventory performance. Over the last four years, safety stock has grown by 14%. This inventory protects against volatility in demand and supply. Multi-echelon inventory optimization is a proven approach to reduce safety stock. However, for companies serious about making inventory work harder, the study finds that the combination of inventory optimization and demand sensing is twice as effective at cutting safety stock, significantly improving inventory productivity.
New insights into growth through innovation strategies reveal that while product innovation accounts for one-fifth of annual sales, each new item generates only half the sales of existing items. This lowers the overall portfolio productivity, as well as profitability and return on working capital. Companies with goals to make items work harder for them can offset this by promoting growth of existing items, better supporting sales of new items by accurately forecasting demand for top sellers and through strong governance to quickly cut items that fall short of expectations.
“The true engine of growth for new introductions is the small percentage that don’t end up in the tail. These items generate disproportionate sales and are important to properly support to maximize returns on innovation,” said Robert Byrne, vice president of supply chain at E2open. “The first takeaway for business leaders is to continue growth through innovation but quickly cut new items that fall into the tail so as not to dilute portfolio productivity. The second is to support your winners with forecasts that reflect current realities on the ground. The study shows that within two weeks of launch, demand sensing provides a step-change in accuracy which continues to deliver over the product lifecycle.”
In addition to inventory productivity, the scope of the study has been expanded to include industry strategies related to supply and distribution agility.