manage supply chain complexity with predictive commerce

Predictive Commerce

Helping companies return to growth

Pat Smith, General Manager, ToolsGroup North AmericaBobby Miller, SVP, Global Consumer Goods Chief Strategist, ORTEC

2ORTEC Predictive Commerce: Helping companies return to growth

Table of contents

1. Helping companies return to growth 3

2. An innovation accelerator 3

3. Improved processes and business results 5

4. Examples of predictive commerce applications 6

5. Benefitssummaryandtypicalfirststeps 10

6. About ToolsGroup 11


Helping companies return to growth

Today’s slow-growth global economy is placing greater pressure on companies to make more than small

incremental improvements in their planning processes. Firms now understand that connecting multiple

demand streams with planning and execution has moved to competitive necessity.

Predictive Commerce is a new strategy that helps these companies return to growth and accelerate their

business performance by connecting upstream demand sensing with downstream supply chain planning

and execution, all in a single model. It reinvents the way companies think about managing customer demand

and supply chain performance to deliver business value.

The core problem is that most current planning processes today are disconnected and disjointed, existing

in many organizations in technology and business process silos. A 2014 benchmarking study conducted

by Supply Chain Digest showed that 83 per cent of 400 responding planning executives characterized their

planning environment as poorly to moderately integrated at best.

For example, in their strategic network design process, many companies perform “product flow

optimization”, optimizing routes for product flow within the supply chain. But these policies are often not

communicated to the inventory optimization process, losing critical information that can be used to identify

a more optimized inventory mix.

This situation won’t endure. A shift in planning technologies is brewing and the traditional hierarchical supply

chain model is changing. Planning and execution processes are tightening. Instead of baked-in latency,

forward-thinking companies are fueling revenue and cost opportunities by leveraging analytics to move

closer to real-time execution with continuous re-planning, taking advantage of increased granular demand

visibility down to the SKU-Location level.

An innovation accelerator

Predictive Commerce is a strategy that enables this shift and revolutionizes the way companies think,

see and plan their end-to-end supply chain. It connects supply chain strategy, planning and execution into

an end-to-end planning process.

The key technology enabler is a single underlying model. Connecting functional processes in a single model

creates a flow of information to maximize individual supply chain processes. Unlike a loosely integrated

environment, a cohesive single model allows the entire process to be optimized.

A predictive forecasting and dynamic replenishment model forms the foundation of any Predictive

Commerce application. It takes advantage of new ways to capture the demand signal and its impact on

the supply chain. It leverages data that is readily available from a company’s ERP system (but may not be

being used to its greatest benefit) and demand signal repository (DSR) to foster end-to-end cross-functional

decision-making, unlocking meaningful and tangible business outcomes.

1.

2.


Predictive Commerce

leverages data that is

readily available from a

company’s ERP system

and DSR to foster end-

to-end decision-making

The added visibility between functions allows each to make better trade-offs. And they are especially in

a greater position to measure, manage and control the “total cost to serve,” a key metric of supply chain

performance.

■ Strategic functions can include network design, business scenario planning and product flow

optimization

■ Planning functions can include demand modelling, demand sensing, promotion optimization,

multi-echelon inventory optimization and predictive ordering

■ Execution functions can include order fulfilment load building, transportation route optimization and

warehouse execution

Trade Promotion Media New Product

DemandModelling

Demand Sensing

Product Flow

TransportationForecasting

Perfect Shipments

Strategic & Tactical PlanningMarket Data

Multi-Echelon Optimization

Predictive Planning & Execution

Network Design

InventoryOptimization

Predictive Ordering

Single Model

POS Data

Master Data Planning Data

ERP


3. Improved processes and business results

1. Fosters collaborative decision making - Unlike organizational silos, collaborative decision-making

across functions creates a bidirectional flow of information and greater reliability of achieving desired

business outcomes.

2. Creates an “Outside-In” approach - Moving from a mind set of “what are we going to make today”

to “what are we going to sell today” is often called an “Outside-In” approach to demand management.

It takes advantage of demand streams, such as order lines, store-level POS data, web based transactions

or customer warehouse data to provide visibility into future demand.

3. Reduceslatencyintheplanningprocess - Reducing the amount of planning time and increasing the

frequency of high quality decision-making helps improve customer satisfaction, asset utilization,

profitability and cost (i.e., transportation, inventory and trade marketing).

4. Converges planning and execution - Synchronizing upstream and downstream functions (technologies

and processes) allows planning and execution to converge. For example, providing an integrated demand

signal and propagating it across the value chain gives visibility to logistics, manufacturing and the

customer facing teams to deliver the best service at the most effective cost structure.

From

WastePeople PeopleProcess

Technology

Process

Technology

To


Application Explanation Sample Benefits

E-Commerce Order

Fulfillment

Multi-channel order fulfillment requires the ability

to promise the specific day and time an order will

be delivered. This delivery model requires that order

reservation slots be pre-determined and integrated

into the route delivery processes. Anticipating

daily demand requirements provides the ability to

create daily reservation capacity and delivery asset

requirements.

A number of grocery retailers have applied

integrated order slotting with continuous route

planning to be able to promise dates and times

to consumers ordering over a mobile device,

internet web application, or from in the store when

delivery is required to the home or another location

with click and collect shopping. This reduces the

miles driven to deliver to the consumers home or

pick-up point, provides customer loyalty services,

increases demand accuracy 10- 20% and reduces

transportation cost by 5 - 20%.

Demand sensing linked

to dynamic replenishment

Using real-time downstream data to drive better

inventory, replenishment, transportation and

warehousing decisions. Connects planning and

execution in a single model.

A large coffee shop brand uses machine telemetry

feeds from 3,000 coffee locations to achieve

demand-driven dynamic replenishment. Enabled

the firm to cut field stock by 20%, grow their

business through increased customer loyalty,

and scale operations by 200%, without adding

headcount.

Demand sensing linked

to dynamic replenishment

- Retailer

Real-time multi-channel order fulfillment and

product segmentation minimizes last mile delivery

cost by using channel inventory. Generates

replenishments for fulfillment stock locations

that are then synchronized to the route delivery

schedules for customer pick up points and home

deliveries.

Top 5 global retailer realized end-to-end supply

chain visibility, increasing capacity utilization

and automating replenishment, resulting in an

estimated annual savings of ~20%.

4. Examples of predictive commerce applications

Here are just a few examples of ways companies can connect upstream demand sensing with downstream

supply chain planning and execution, all in a single model, to deliver business value.



Augmenting SAP APO Leverages readily available detailed downstream

data from a company’s ERP system or demand

signal repository (DSR) to provide a better account-

level forecast and a more reliable deployment

strategy of where you need inventory to achieve

your target service levels. Takes advantage of new

demand streams, such as order-lines, store-level

POS data, or customer warehouse data to provide

visibility into future baseline demand and true

promotional lift.

Reduces latency in the planning process. Greatly

improves forecast accuracy (especially short-

term to medium-term). Optimizing operational

performance across multiple key financial criteria

including trade promotion.

Market-driven

transportation forecasting

and optimization

Connects demand sensing with truckload

optimization via predictive orders. Provides the

ability to shift from reacting to orders to proactively

managing capacity requirements. Predicting

transportation capacity in advance reduces

the reliance on spot markets, locks in carrier

commitments sooner, and improves time to adjust

to logistical issues in a tight carrier market. In

addition, it improves carrier collaboration, increases

intermodal shipment opportunities, and provides the

ability to smooth warehouse resources.

Reduces freight cost ~5 – 10% annually.



Market-driven Vendor

Managed Inventory (VMI)

VMI requires the ability to understand your

customers’ demand and inventory levels. Significant

labor cost is associated with managing the vendor’s

inventory requirements and maintaining agreed

upon service levels. Prioritizing items and building

advanced truckloads ensures that the right product

is delivered in the least amount of truck assets

possible. The ability to identify the “must go,” “should

go” and “can go” products ensures promotional

product demand is on the right truck before turn

business. Applying days of supply prioritization

when building the trucks guarantees high velocity

products are delivered on-time vs. low turn products

with high inventory levels at receiving location.

Enables Fortune 100 consumer good companies to

reduce freight cost ~5 – 10% annually.

Directed put away and

retrieval for the cold chain

Reducing the proliferation of expired and out-of-

code products is particularly important for highly

perishable foods such as poultry, meat, fresh fruits

and vegetables, and also short life pharmaceuticals,

such as biologics and diagnostics. For example,

what are the drivers that cause pharmaceuticals

to remain unsold before their expiration dates?

Demand and inventory related issues due to

improper warehouse stock rotation are mainly

driven by service level commitments. Connects

inventory service level with the sequencing of put

aways and retrieval. Selection criteria of outgoing

product, such as quantities of products and

expiration dates, and blocked status are directed

by sequencing logic to ensure the right product is

retrieved.

Improvement in warehouse stock rotation reduces

“unsalables.” Automated warehouse control

sequencing optimization provides the ability to

control ”First In, Last Out” using expiration data vs.

the traditional date of receipt. Expected savings in

reducing “unsalable” inventory is ~5% annually.



Market-driven Direct Store

Delivery (DSD) - For static

and dynamic routing

Focuses on shelf inventory visibility to drive

accurate replenishments, reduce last mile delivery,

and increase tracking of inventory. Driven by the

use of Point of Sale data to forecast store demand,

the DSD supplier can sense what is moving through

the store to plan the people and assets required to

execute to the demand. Synchronizing when the

merchandiser resource is at the store coupled with

when and what

time the truck driver will deliver is accomplished

using dynamic route optimization.

Ensures the ability to execute to the predicted

demand. Increases in-stock forecasting accuracy

by ~20% annually.

Retail last mile home

delivery - Market-driven,

dynamic routing

Redirects routes based on realtime inputs. A short

horizon, high frequency trigger demand visibility

signal (demand sensing) translates demand across

multiple systems to drive the pick-ups. Retailers

are looking at how to best deploy a multi-channel

delivery strategy and be profitable at delivering to

the last mile. The two main ingredients of a last mile

delivery model are inventory and transportation.

Demand-driven inventory and route planning

identifies where the inventory needs to be to fulfill

the end consumer order and secondarily determines

how best to route the order at the least cost.

Replenishing to fulfillment centers and delivering to

multiple customers goes hand-in hand and requires

real-time decision-making.

Predictive demand-driven last mile routing

improves order fulfillment, customer experience

and increases in-stock availability. Miles-driven

savings is ~15% annually.

Rules-based load

optimization for

pharmaceutical

In the pharmaceutical industry, creating deliverables

pallets requires expert knowledge of the drugs,

compatibility and proximity of what drugs can reside

on the same pallets and containers. It requires

updated information regarding FDA rules and other

complexities to create a delivery strategy. This

mandate ensures there is no cross-contamination

or potential hazards in mixing drugs on a pallet and

container.

Using rules-based load building that considers the

FDA and International restrictions provides the

ability to reduce freight cost by building optimal

pallets and containers without the required man

hours used to create deliveries. Expected labor

savings is 30 – 50% annually.


Benefits summary and typical first steps

Typical sustainable business benefits from adopting a Predictive Commerce approach include:

■ ~ 30%+ improvement in forecast accuracy

■ ~ 20%+ efficiency with inventory investment

■ ~10%+ reduction in transportation delivery cost

■ ~ 1% + increase in revenue

■ ~ 1% point in margin growth

Predictive Commerce is not a single solution, but a sustainable strategy for business growth and success.

Most companies use a “crawl, walk, run” strategy, starting with high value-added points of entry. Some

immediate opportunities include:

1. Focusing on improving Demand Management by fully leveraging demand signals to maximize the

accuracy of forecasts and improve the representation of the volatility of demand

2. Enhancing Transportation/Load Build Optimization with time-phased demand streams to address

demand volatility and the last mile to maximize the customer experience.

3. Implementing Multi-Echelon Inventory Optimization (MEIO), possibly by outsourcing

for quick time-to-benefit

4. Updating Supply Chain Design to include product flow path optimization

5.


About ToolsGroup

ToolsGroup is a global provider of “Powerfully Simple” market-driven

demand analytics and supply chain optimization software. Reliable

behind-the-screen technology and scalable statistical models supported with machine learning technology,

enables highly intelligent data-driven decision making, combined with ease of use. Our customers overcome

volatile demand and challenging supply chains through a proprietary demand model that generates accurate

forecasts and outstanding customer service levels with less global inventory. ToolsGroup’s capabilities span

key supply chain planning areas such as Demand Forecasting and Collaboration, S&OP, Demand Sensing,

Promotion Forecasting and Multi-Echelon Inventory Optimization.

6.

About ORTECORTEC is one of the largest providers of advanced planning and optimization solutions and services.

Our products and services fully optimize fleet routing and dispatch, vehicle and pallet loading, workforce

scheduling, delivery forecasting, logistics network planning, and warehouse control. We offer stand-alone,

custom-made and SAP® certified and embedded solutions that are supported by strategic partnerships.

Our 750 employees support over 1,800 customers worldwide from offices in Europe, North America,

South America, and Asia Pacific.

ORTEC world wide

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www.ortec.com

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