Pandemic puts paid to demand planning

by Inside Logistics Online Staff

A new study has shown that errors in demand planning during the pandemic increased by 20 percent. Extreme errors increased by 33 percent.

These results are from the 10th annual Forecasting and Inventory Benchmark Study, an in-depth analysis of supply chain performance that assessed the pandemic’s impact on business.

Data from the study, which encompasses over US$200 billion of fast-moving consumer goods, reveals that the pandemic has made it harder than ever to do business. While demand for essential items drove record sales, service levels fell from 99 percent to a historic low of 83 percent.

Companies invested more in inventory to protect against demand and supply volatility, both of which were elevated during the pandemic. To bolster the availability of essential goods, manufacturers shifted strategic focus away from product innovation to boost production efficiencies, reduce changeovers and maximize output.

Planning investments

From a planning perspective, the pandemic made businesses inherently harder to forecast than in prior years. Companies lost half the value-added from their planning investments, as demand planning accuracy fell dramatically during the pandemic.

Demand planning error increased more than 20 percent and extreme error increased by more than 33 percent. While all supply chains are built to accommodate a certain level of error, “extreme error” is when forecasts exceed or fall short of shipments by more than double. This type of error is by far the most costly and disruptive to business and is a particularly relevant metric during major disruptions like the pandemic, especially for essential goods that people depend on to stay healthy, fed and safe.

“It’s tempting to view the pandemic as an anomaly and stay the course in hope of a quick transition back to the old, pre-pandemic normal,” said Pawan Joshi, executive vice-president of product management and strategy at E2open, which sponsored the research.

“However, the unfortunate reality is that business did not return to normal. Instead, things settled into a new baseline where every aspect of business is tougher than it was in pre-pandemic times – and that was before the Delta variant and the string of droughts, floods and wildfires that have taken place in 2021.”

Real-time data and AI

The study found that using AI and real-time data to understand current market realities led to dramatic improvements at all stages of the pandemic, including the tumultuous period of consumer panic buying as lockdown and stay-at-home orders were imposed.

Demand sensing, which uses AI and real-time data to better predict what customers will order, cut forecast error by more than one-third, reduced the volume exposed to extreme error by half and drove a six-fold increase in realized value from investments in people, processes and technology related to planning.

“Understanding what actually happened during the pandemic helps leaders prepare for other large-scale disruptions in the future,” said Michael Farlekas, president and chief executive officer at E2open.

“Being better prepared is a crucial factor in building resilient processes, being proactive rather than reactive, supporting the communities you serve during trying times and emerging stronger than before. Today’s supply chain processes span internal operations, multiple tiers of upstream and downstream trading partners, and reach down to the end consumer,” continued Farlekas.

“While these are all inherently linked and interdependent, few corporations have sufficiently invested in connecting end-to-end processes and systematically leveraging current information and AI to build resilience. This is an area of strong potential for most firms – to help them better manage future disruptions and capitalize on the hidden opportunities disruption can bring.”