Thursday 13 October 2016 12:31:14

In Pursuit of Productivity

John Lash, Vice President, Product Marketing, E2open
John Lash, Vice President, Product Marketing, E2open

Does planner workload affect productivity? Can technology help companies achieve a step-change in productivity? The answer to both of these questions is yes. Here are some data-driven facts to consider in your pursuit of productivity.

Slow growth in recent years has made productivity a key priority for the leadership. Strategies to raise productivity typically include investments in technology advances to increase output or layoffs to reduce hours worked. Many companies have taken the route of cutting headcount to reduce SG&A expenses but at what cost to the organization?

At the same time, there is a lot of industry talk about prescriptive analytics that use real-time data, algorithms and automation to enable a surge in productivity and performance. Analysts are calling this the “Digital Supply Chain.” The World Economic Forum refers to it as the “Fourth Industrial Revolution.” Sounds great but is this hype or reality?

To answer these questions, this year’s E2open Forecasting Benchmark Study looked at the impact of planned workload on productivity and whether technology using real-time data, algorithms and automation can substantially raise it. For those not familiar with the annual Forecasting Benchmark Study, it analyzes the demand planning performance of 17 multinational consumer products companies. It's the largest study of its kind, encompassing over $250 billion in annual sales, 9 billion cases and 1.6 million SKUs.

Productivity

As a way to quantify the impact on productivity, workload (in terms of the number of base codes managed by each full-time planner) was compared to forecast value-added (a standard metric to measure the value provided by planning systems, processes, and people). The dataset finds a correlation between workload and productivity. As workload increases, the value-added achieved by investments in traditional demand planning systems and processes declines. This reinforces the value of providing planners sufficient time to manage items in their portfolio. The higher workload is also linked to increased levels of extreme forecast error (when forecasts fall short or exceed sales by more than two times). An extreme error is the most disruptive and costly error to the supply chain. It erodes margins with additional logistics and holding costs; as well as increases the rate of product cuts and lost sales. So while shrinking headcount provides an immediate lift to financials, companies that cut planners should expect to see a reduction in value-added and more extreme error. In short, you can’t cut your way to sustainable growth.

Productivity

Data from the study shows that for any given workload, Demand Sensing technology provides a step-change in raising forecast value-added and reducing extreme error. To the earlier question, the use of real-time data, algorithms and automation in demand planning pays off. It is not that automated algorithms are smarter than people but much faster. This makes them uniquely positioned to analyze staggering amounts of data. They leverage complex patterns to align sales projections with current market realities and do it all in time to publish daily forecasts for every SKU every day. Offloading mundane, number-crunching tasks to algorithms augments planners and allows them to focus their valuable time on strategic activities that require human insight. The result is an immediate boost in productivity. It also provides better return on investment in demand planning systems, processes and human resources.

For additional analysis on the state of demand planning performance, request your copy of E2open’s 2016 Forecasting Benchmark Study.

This article was originally featured by Supply & Demand Chain Executive here

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