Supply chain planning in an xP&A world 2.0

Achieving lean supply equilibrium

By | 3 minute read | August 27, 2021

Supply chains continue to be tested and transformed by the increasing globalization of the world economy, along with the massive amounts of insightful—but often disparate—data that comes with it. Demand volatility is on the rise, and given the pandemic’s ongoing uncertainty, it shows no signs of slowing down any time soon. Supply chain planning seeks to achieve and maintain an effectively lean supply equilibrium, one in which organizations store the necessary level of inventory on hand to meet the projected demand and reduce overhead and carrying costs.  Supply chain leaders know one thing is clear: inventory accuracy has never been more important, and they’ll need a truly comprehensive planning tool to get it right.

Finding the perfect balance that exists between sufficiency and surplus can prove especially tricky; however, extended planning and analysis (xP&A) solutions are making this easier.  At IBM, we take this a step further with “continuous integrated planning.” This enables planning to expand beyond the walls of finance and foster collaboration with the other functional teams to find the right supply and demand balance.

Supply and demand: the risk of getting it wrong

Inventory accuracy often dictates a company’s success. Overshooting projections can lead to obsolescence with excess inventory sitting in a warehouse, incurring costs and consuming valuable space that could be used for faster-moving inventory.  To mitigate these expenses, organizations resort to deeply discounting the slow-moving inventory.  In addition to the margin erosion associated with these activities, there are brand and market implications as well, such as lower consumer expectations and confidence around price and quality. This trend is extremely difficult to reverse provided you can even sell the extra inventory.

Excess inventory is only one part of the problem. Inventory shortages can also wreak havoc on a company’s bottom line. A large retail organization in the U.S. found out first-hand in December 2020 when they kept in-store inventory exceptionally lean with the expectation that their route to market would shift from in-person shopping to online shopping. Ultimately, this retailer disappointed customers who browsed empty shelves as a result of out-of-stock items, and lost repeat customer business.

Inventory forecasts are sensitive not only to internal data but also to external factors and environmental shifts. To plan with greater certainty, organizations need a planning solution that embeds predictive analytics and prescriptive analytics along with what-if scenario planning. They need a solution that integrates external factors such as weather data, market data and consumer buying patterns into the process, providing them the foresight to pivot quickly.

With prescriptive analytics, the operations team can match demand with current inventory levels at distribution locations to optimize placing the right products in the right locations at the right time. An extended planning & analysis solution provides full end-to-end visibility into both inventory and demand in real-time, thereby reducing the imbalance and providing a 360-degree view of the supply chain process.

Here’s how companies have achieved inventory accuracy with an integrated planning solution.

Allen Edmonds: Finding the perfect fit between inventory levels and customer demand 

When you buy a pair of shoes from Allen Edmonds, you expect a perfect fit. To keep customers coming back for more, it’s vital to stock the right styles and sizes in the right stores at the right time.

By transforming its planning processes with IBM Planning Analytics with Watson, Allen Edmonds gained insight into sales, regional preferences and more. Smarter decisions about which items to place in which stores helped the company boost sales, customer satisfaction and loyalty—even while reducing inventory levels.

Results: 10% lift in forecasting accuracy: results for one major event were within 3% of forecast

Pebble Beach: Creating the best shopping experience with IBM Planning Analytics with Watson 

Pebble Beach needed to satisfy shoppers with 15 unique stores and over 30,000 products.

Pebble Beach deployed IBM Planning Analytics with Watson to help its retail division analyze inventory levels, optimize purchasing, and make better use of merchandise. As a result, Pebble Beach keeps its stores fully stocked with the most desirable items, boosting sales and helping guests find the perfect memento of their visit.

In summary, we know that achieving lean supply equilibrium is difficult. Embracing extended planning using IBM Planning Analytics with Watson empowers organizations to not only overcome the supply vs. demand imbalance, but also to mitigate operating costs and ultimately enhance customer loyalty.

Learn more about IBM Planning Analytics with Watson