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Customized Inventory Planning Solutions using Analytics
– Practical Examples
Jamie Wates & Calven van der Byl
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Inventory Planning Challenges
“We have so many items it is impossible to manage”
“Our forecast
accuracy is really bad”
“New items are a
nightmare to plan for”
“Logistics costs are high because of
month end demand spikes”
“Our store shelves
must always look full”
“Price changes skew item demand history that
we can’t forecast”
“Our suppliers
are just too unreliable”
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Data Challenges
• Data Accessibility
• Data Quality
• Data Requirements
• Data Understanding
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Examples of Potential Solutions - A Planning Toolkit
Exception Management Dashboards
Multi-levelForecasting
Store Capacity Planning Model
Price Elasticity ofDemand
Supply Lead TimeAnalysis
Inventory PolicySimulation
New ProductForecasting
Daily | Weekly Sales Profiling
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Analytics Life Cycle
Business Problem
Data Required
Data Exploration and method development
Solution Execution
Present and Evaluate Results
Operational Implementation
Software Developer
Data Scientist
Data Scientist
Database Administrator
Domain Practitioner
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Example 1: Life Cycle Forecasting
Traditional Methodology
The Problem
Sales history is a poor driver of the forecast if the product’s life cycle is not taken into account
Allow forecast software to drive the sales forecast based on historical sales levels
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Positively Skewed Product Lifecycles
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• Identify SKU’s that exhibit life cycle characteristics using rules based logic
• Ensure items that are in their early lifecycle have a decaying forecast to reflect the diminishing adoption over the life time of the product
• Ensure items that have sold for a long period do not generate false forecasts
• End of Life Cycle
• Early Life Cycle
Staggered Intervals (Longer Life Cycles)
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• Generate a forecast curve based on similar or “like” items
• Adjust curve parameters monthly taking latest sales into account
• Once items have reached the industry standard lifecycle, maintain or employ zero forecasting strategies
• End of Life Cycle
• Early Life Cycle
Curve Fitting(Shorter Life Cycles)
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• Significant changes made to the forecasts to more accurately reflect product life cycle expectations
• The forecast now exhibits an appropriate level to drive more accurate planning
Results: Life Cycle Forecasting
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• Sales forecasts are not always appropriate as price changes affect sales history• Price is omitted as a variable in the forecast and needs to be taken into account
Example 2: Forecasting with Price Changes
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• Account for the effect of price changes in the forecast• Adjust forecast in order to reflect price changes for ‘difficult to forecast’ sales history
Methodology
Purpose
• Select item groups that will be used to calculate price sensitivities• Perform the price regression to identify which item categories are price sensitive• Forecast the resulting residual errors of the price regression
Forecasting with Price Changes
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Traditional Methodology
• Allow forecasting software to generate an unrestricted forecast based on sales history
• Forecast now accounts for significant historical price changes that have influenced sales• Inventory levels are providing better service levels
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The Challenge: Daily, weekly & special day sales exhibit seasonal patterns within a month
Day in week
Week in month
Special days
Saturday Saturday Saturday Saturday
Example 3: Daily Disaggregation
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Traditional Methodology
• Aim:• Introduce a new methodology for disaggregating monthly forecasts to daily.
• Method:• Aggregate historical sales to a level where seasonal patterns are visibly obvious.• Calculate % contribution of each day, week & special day to each months sales
using an adaptation of exponential smoothing seasonality index calculations.• Use historical % contribution for similar months in the forecast period to
disaggregate the monthly forecasts by multiplying the monthly forecast by the % contribution.
• Monthly forecasts are divided equally over the month to obtain daily forecasts.
New Methodology
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% Contribution Graphic
Results: Daily Disaggregation
• Multiplying the monthly forecast by the above % contribution values results in a daily forecast with the same patterns.
• Timing of logistics is improved to reduce costs and improve customer service levels.
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Benefits of Inventory Planning Configured Solutions
Source: Geodis 2017 Supply Chain Worldwide Survey
Daily Profilingfor Planning
Pricing in Forecasting
LifecycleForecasting
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Learnings
Identify Opportunities
• What are the pain points?
• Is there data available?
• Think out of the box
• Identify the resources required – internal/external?
Process Design
• Super user with scripted programming language goes a long way
• A formal process justifies the intervention
• Advanced solutions provide insight that would otherwise be gutfeel
• The better the process the less resources required
• No Shortcuts
• Address the data challenges
• Importance of validation
• Project plan & document
Data Management
Cost Benefit Analysis
• Weigh up the costs vs potential benefits of the solution
• Get buy-in from the organization
• Implement the solution
• Drive continuous improvement
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Learnings
“Let's make the data work for us so that we have time to look
up from our devices and see what we've been missing”
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Thank You for listening
Any questions?