In a Complex Retail World, Kellogg Company Turns to Demand Sensing

In a Complex Retail World, Kellogg Company Turns to Demand Sensing

Predictability, it seems, has gone out the window. New products pop up at a rapid rate, and others disappear, as merchandisers struggle to get the attention of jaded consumers. And with this dizzying array of choices comes the challenge of guessing what's going to sell. So companies are turning to sophisticated demand sensing tools to get a better notion of actual buying patterns. Such was the motive behind The Kellogg Company's acquisition of a demand sensing application from Terra Technology.

According to Kurt Specht, who oversees demand planning for Kellogg USA, the company's need for a better system was driven by changing business dynamics, "due primarily to trade promotion activity, coupled with a strong innovation focus." Like any successful producer in the consumer-packaged goods arena, Kellogg can't afford to stand still.

Traditionally, Kellogg's demand-planning and forecasting resources have been aimed at the intermediate term. Most CPG companies, says Specht, tend to focus on one to three months in the future. Less attention is paid to the very short or very long term.

A company that can improve the forecast for next week or the week after creates a "cascading effort" that affects production planning for the future as well, says Specht. "The quality and accuracy of your call is better in the near term, which means that inventory is more appropriate for that plan. You are able to influence production quality and timing."

Demand sensing serves as an alternative to traditional demand planning, whereby companies look primarily at seasonal patterns and average sales for a given time of year. Demand sensing brings in all the data that might be relevant about what's going on in the marketplace. Orders, historical trends, point-of-sale data and channel inventory are among the inputs that can be factored into the mix.

Benefits were quickly evident for Kellogg. For short-term demand over two weeks, Kellogg experienced 40-percent greater forecast accuracy.