A company will never see the financial benefits of integrated demand and inventory planning if its employees don't...
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use the software. Experienced users and industry experts point to the challenge of getting supply chain analysts and salespeople to dump their tried-and-true methods, even after they have moved beyond paper.
For instance, in a recent AMR Research survey, half the responding companies said they used Microsoft Access or Excel for demand and inventory forecasting, according to Noha Tohamy, an AMR Research vice president who covers supply chain management (SCM), inventory management and demand planning.
"It's staggering how prevalent Excel spreadsheets are in demand planning and supply chain planning," she said. "It's become kind of a security blanket."
Although many SCM tools provide a migration path by importing and exporting Excel files, some companies use more drastic measures to get their employees to use more sophisticated tools. Tohamy mentioned a recent conversation with a consumer electronics manufacturer whose employees didn't regularly use the demand planning tools it had deployed three years earlier until it finally forbade them from using their beloved spreadsheets. Since then, the company has been able to improve forecast accuracy and customer-service levels significantly.
Demand planning software reducing reliance on spreadsheets
Jason Bates, supply chain manager at Quality Bicycle Products, a Minneapolis-area distributor, had a similar experience. The company was using a "rudimentary" replenishment method that involved 90-day moving averages and had long employed the economic order quantity (EOQ) model of inventory management -- with mixed results.
Bates said that the company's analysts then tried time-phased replenishment calculations in Excel but couldn't keep up with volume, and lead times increased. The company considered building onto its Infor ERP SX.enterprise system, and three years ago purchased the Infor SCM Demand Planning suite.
One of the new tools in the suite, Replenishment Planner, has a spreadsheet-like interface with a column for each day of the year and rows for forecast demand, incoming supply, and target inventory. Days can be aggregated into monthly figures and graphed.
The fastest return on investment (ROI) has been from a feature that advises analysts when to expedite or delay orders. "It really has the ability to plan demand against supply out into the future," Bates said. "We spend a whole lot less time with spreadsheets and waiting for them to crunch numbers, and more time making decisions."
Infor SCM Demand Planning also includes inventory optimization that provides just the right amount of statistics, allowing Quality Bicycle Products for the first time to scrutinize safety stock according to the customer service it provides, according to Bates.
Installation was uneventfully completed in 90 days, but training was a challenge. The 30,000-SKU supply chain was historically managed by buyers who had come from the 5,000 independent bike shops that are Quality Bicycle's customers. "They don't really have any professional training on supply chain or forecasting," Bates said.
Prior to the install, six buyers were reassigned to focus on inventory. "The software is complex," Bates said. "Forecasting is esoteric by nature. Taking that different approach and getting everybody to unlearn what they had learned, and learn a new way, was a challenge." But after viewing webinars and attending Infor conferences, they were able to accept the change.
Actual safety-stock savings now seem "nebulous," Bates said, but the gains in productivity are clear, and perfectly timed for the recession. "I can't tell you what our organization would look like today if we didn't have it," he said. "It would probably be a lot more frustrating and we would have a lot more people. We've pulled $8 million of inventory out of our supply chain just this year."
Bates's advice to others considering the move? "Get everybody trained on planning before they go out and use the application."
Helping users adapt to inventory planning software
Finding easy-to-use software and helping users transition from older inventory methods is key, according to Anupam Singh, manager of inventory planning and replenishment at RoomStore, a Richmond, Va.-based furniture retailer with three distribution centers and 141 RoomStore and Mattress Discounters locations nationwide. Singh oversaw RoomStore's switch last year from paper to Demand Management's Demand Solutions Forecast Management, which includes modules for forecasting, replenishment and reporting. "It's made life so much easier," he said.
User training and adoption presented the only real hurdles, since data mapping and discovery "didn't take long," Singh said, and the software was operational in three months. Singh and his team of six other inventory analysts are the primary users, although buyers and the vice president of merchandising sometimes look at reports, sales history, and inventory positions. Demand Management's installing technician trained Singh and four other analysts, and Singh trained the other two inventory analysts.
Inventory change management poses adoption challenges
The biggest hurdle may be managing change in the user culture. Inventory analysts had used paper methods for years, so Singh sat down with them to demonstrate the benefits, sometimes using Microsoft Excel to illustrate how logic embodied on paper could be translated to software. "If you give people even an ounce of doubt, they're not going to trust it," he said. "We had to make sure everything was foolproof." His advice: "Train and retrain as needed."
It also helped to have executive champions in the IT and business sides, and software that Singh called intuitive to use, comparing it with more challenging tools from Manugistics that he used in previous jobs.
People are the key ingredient to success. "You need to have the right talent," Singh said. "Don't expect the software to do the work for you." Also, take the time to ensure that data definitions are standardized and appropriate for your business. Singh said a proliferation of definitions for the same entities delayed a software rollout at his previous employer, Circuit City.
RoomStore has saved time by eliminating manual processes while increasing sales history visibility roughly tenfold, to 36 months. Almost immediately, the software gave analysts logical reasons to eliminate orders they might otherwise have based on emotion.
It also gave salespeople more confidence to steer customers to items without fear of delays or stockouts. The company also cut net owned inventory by 33% in the first five months. "It was huge for us, without affecting fill rates or in-stocks," Singh said.
Demand planning means training, forecasting, integration
Tohamy recommends a similar combination of carefully fitted software and training. "The 'training the trainer' philosophy is usually what works best," she said. "It has to be someone that the users are going to listen to" -- a respected person who can also empathize. Building realistic models into the software will also help ensure that it gets used. Vendors are starting to address some of these concerns by returning for on-site consultations and to update models.
Multi-echelon inventory optimization software has not been widely adopted, despite its potential to automate inventory planning with sophisticated algorithms and analysis, according to Tohamy. That's because users have not found it transparent enough.
"Nine times out of 10 there is a group within the company that is very operations-oriented," she said. "The buy-in across the organization becomes problematic." Furthermore, the software isn't usually integrated very well into the broader demand and inventory tools to which users are accustomed. "[Optimization tools] solve the problem almost independently," she said.
The answer won't come from more clever optimization algorithms. "There's plenty of science in these tools," Tohamy said. "We don't need any more science for a good long time." Rather, companies should focus on their demand-side software and processes so users can begin to trust the system. "If you can get your forecast done right, you can get the inventory right."
Using demand planning software as part of a formal sales and operations planning (S&OP) process is an even better way to get more people involved in improving forecasts with insight and customer input, Tohamy said. Integrating niche tools into ERP and other SCM systems will also spur adoption by letting people work in a single, familiar software environment.
About the author: Freelancer David Essex has covered information technology for BYTE, Computerworld, PC World, and numerous other publications and websites.