New study shows a shift in demand planning

Dive Brief:

In the past five years, the number of consumer products for sale rose by 32% but saw just a 4% increase in sales. In fact, average sales per item dropped 22%, according to the sixth annual Forecasting Benchmark Study from supply chain software solutions firm Terra Technology.
The results show a shift in demand planning, Terra says, with buyers relying on daily data reflecting current market conditions, automation, and advanced pattern recognition algorithms rather than the traditional use of historical performance and “rules of thumb.”
The rate of new product introductions has spiked in five years: The number of distinct items for sale has almost tripled since 2010, up 187%. The majority (82%) were discontinued, and just 5% of all new items generate sufficient sales in their first year of production to escape being relegated to the tail. For the study, Terra looked at $250 billion in annual sales from the global businesses of 14 multinational consumer products companies, with nine billion cases and more than one billion item-warehouse combinations.

Dive Insight:

In this study, Terra shows the limits of data and innovation when it comes to supply chain management. It seems that consumer products companies are complicating their supply chain by opting for new products blessed by algorithms but not yet by consumers.

It’s not clear what’s going on here, aside from a change in buying approach, from what Terra calls “historical performance and rule of thumb” to data-driven decisions.

Certainly “the long tail” theory of retail — the idea of selling more of niche products, and less of mass market ones — has been largely debunked. But the appetite for innovation is strong and data-driven models are reigning supreme.

“It is not a pretty picture,” Terra writes. “Item proliferation is rampant and getting worse, with growth through innovation strategies driving complexity, but not sales.”

As we noted yesterday, in a post about retailers turning more to software and less to chief merchants, the key is not just having the algorithms, but the ability to leverage them wisely and even creatively.