The Pressure Is Rising for CPG Companies to Improve Order Delivery Performance
Sep 21, 2018 Comments (0)
Walmart’s announcement last year that it would toughen up its on-time, in-full (OTIF) delivery requirements sent a chill through supply chain executives at CPG companies doing business with the world’s largest retailer.
Under the new requirements, Walmart’s thousands of suppliers may face a 3 percent fine on the cost of goods if they don’t deliver full orders within a specified one- or two-day window 85 percent of the time.
With Walmart being just one of many retailers that impose penalties when OTIF targets aren’t met, millions of dollars in potential fines are on the line. So are millions in lost sales, along with brand damage among consumers and B2B buyers.
Plus, new market pressures are raising the stakes for OTIF. Manufacturers are facing SKU proliferation to go to new markets and to answer consumer demand for more personalized products. Pricing and seasonal promotions introduce additional volatility, while consumer expectations for speed and immediate product availability are soaring.
Globalization is another factor that complicates OTIF. Large CPG companies operate hundreds of sourcing, production and distribution systems around the world, run both internally and by partners. As these ecosystems have grown, it’s become more difficult than ever for supply chain planners to accurately predict OTIF.
OTIF, however, is notoriously complex because it’s the end result tied to multiple variables in the supply chain. Demand forecasting miscalculations, raw materials and finished goods inventory shortages, manufacturing interruptions and transportation delays are among the many factors that can conspire to send OTIF into a tailspin.
The Losing Battle to Improve OTIF
Companies have invested millions in technology in attempts to optimize the dueling supply chain dynamics that drive OTIF. A sizable CPG company typically runs dozens of applications that support supply chain operations, from ERP, APS and CRM to systems for warehouse management, demand forecasting, material requirements planning (MRP) and manufacturing execution.
Yet because those systems are typically disconnected silos, CPG manufacturers still lack the holistic view of the supply chain they need. Supply chain practitioners can spend 60 to 80 percent of their time collecting and crunching numbers from disparate global systems in efforts to make decisions to meet OTIF goals and to pinpoint the root cause of supply chain weakness that’s causing downstream disruption. It can take weeks before a decision is made, and root cause is identified, if it ever is. By then, the damage is probably already done.
As data volumes and business complexity continue to rise, it’s extremely unlikely that CPG companies will be able to significantly improve OTIF and supply chain operations as a whole with legacy technology and processes.
The New Frontier of Cognitive Automation
What’s needed is a bold new approach that leverages emerging technology purpose-built to optimize the supply chain and its critical OTIF metric. That technology is based on artificial intelligence (AI) and machine learning atop an elastic cloud platform with the compute power and scalability to process terabytes or even petabytes of data.
Those are the technology ingredients for cognitive automation that shifts the burden of data collection, normalization and analysis from humans to machines. Cognitive automation brings to the supply chain breakthrough capabilities to finally harness massive volumes of fragmented data for insights and actions that generate millions of dollars in bottom-line impact.
For example, with Aera Technology, several leading CPG companies are applying cognitive automation capabilities in areas such as inventory management, demand management, manufacturing and logistics, each of which influences OTIF. Specifically, from an OTIF perspective, they’re realizing benefits in three principal areas:
Real-time root cause analysis. Rather than multiple weeks of manual labor with uncertain results, cognitive automation can identify the root cause of an issue almost immediately, based on real-time data collected through thousands of daily data crawls across applications.
Real-time recommendations. Based on the root cause and knowledge of other resources (e.g., available inventory, manufacturing capacity, alternative suppliers) cognitive automation offers prescriptive suggestions to resolve an issue and calculates the expected revenue and cost benefits.
Accelerate or automate decisions. Supply chain managers are able to make faster, more informed decisions to correct a problem before it cascades into a disaster. Or they may elect to have the cognitive automation system make decisions and take actions autonomously.
Ultimately, OTIF is a balancing act. CPG companies are challenged to deliver on-time and in-full, and yet can’t afford to overproduce goods and tie up working capital with excess buffer inventory in distribution centers. By embracing AI-driven cognitive automation, CPG companies can balance competing demands. They will be able to improve OTIF to increase customer satisfaction, reduce the cost to serve, and gain new supply chain resilience and agility.
Arnaud Morvan is a Senior Engagement Director at Aera Technology, helping some of the world’s largest enterprises succeed in digital transformation. With more than 18 years of experience, Arnaud’s end-to-end supply chain expertise spans across supply chain transformation, business process improvement, technology for supply chain and program delivery. Previously, Arnaud held supply chain executive positions…