Improved insights give Nestlé the competitive edge
We all like seeing our favourite products on special but there's more to running a promotion than simply deciding to cut prices. Discounted prices lead to an increase in demand and unless this demand is accurately planned, manufacturers can find themselves with either too little, or too much stock.
Nestlé Oceania demand manager Davis Wu says for a fast moving consumer goods organisation such as Nestlé, accuracy around demand planning is crucial.
"Previously, if we were going to run a promotion we'd look at what the demand was for similar promotions in the past," Wu says. "However, this didn't consistently provide an accurate plan; we needed a more holistic view for better demand planning."
Efficient manufacturing relies on accurate planning
For Nestlé’s factories, inaccuracy in demand planning has flow-on effect on production scheduling of finished goods and amount of raw and packaging materials to be purchased, potentially causing delays in production, and failing to serve customers.
"We need to ensure raw materials orders from our suppliers are accurate so our products are produced in time and as fresh as possible when they hit the shelves of our customers," Wu says.
Nestlé is a global leader in nutrition, health and wellness products and has been providing consumers with a wide range of food and beverage products for more than 100 years. Its Oceania business employs more than 6000 people, operates 12 factories, five distribution centres and 20 offices across Australia, New Zealand and the Pacific Islands.
Improving accuracy around demand planning
Nestlé implemented SAS® Forecast Server to enhance its processes and achieve greater accuracy in demand planning.
"Over the phased implementation, we've seen improvement in demand plan accuracy, in particular bias," says David Hix, Nestlé Oceania supply chain director.
Since the implementation, Nestlé has reduced the forecast bias to less than half of what it was prior to using SAS, resulting in lower working capital.
Nestlé is now also able to adopt a more holistic approach to its demand planning and operations.
"If we run a promotion on one size of particular product, we know that our other sizes of that product are going to be affected and we can quantify the effect and make changes in our demand plan, improving its accuracy as a result," Hix says. "We are now making smarter business decisions."
Nestlé has also changed the way its supply chain, sales and marketing divisions collaborate.
"Instead of making different demand plans, all parties provide key inputs to generate one demand plan," Hix says. "We call this the 'single source of forecast' and this process ensures that we plan our business based on facts with inputs from all parties."
Wu says planning promotions based on facts rather than intuition has helped it gain even more insights.
"We can now work out the best time to run a promotion or what would be the best discount price to offer, rather than just guessing based on opinions or experiences of individuals," Wu says.
Hix says feedback from users since the implementation has been overwhelmingly positive, in particular from senior managers, whose engagement in the project is high.
"It was important to us that the solution could be deployed to all planners, even those who don't possess statistical or technical skills," he says. "Senior managers also recognise the impact of best return on investment in key areas such as promotion planning and marketing spend.
"The next key objective is to continue to further improve our promotional planning and marketing spend and embed it into all key decision-making processes," Hix says.
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David Hix, Nestlé Oceania Supply Chain Director
Nestlé was finding it difficult to accurately plan sales demand around promotions in a consistent way. This affected business performance in various different ways.
SAS® Forecast Server
Using SAS, Nestlé has steadily improved the accuracy of its demand planning and is able to look more holistically at how running promotions affect other parts of its business.
“We can now work out the best time to run a promotion or what would be the best discount price to offer, rather than just guessing based on opinions or experiences of individuals.”
Nestlé Oceania Demand Manager