Everyone needs an escape. Something, anything, to take your mind off your current situation and recharge. Mine is carpentry. While I am no professional or craftsman, I've restored a 70-year-old dining table and built desks as well as a bench so I can enjoy my lemon trees inside. I’ve even fixed a pre-World War 2 dresser, which contained a fabulous surprise, but more on that later. Restoration is my passion. It's a great feeling bringing something back by stripping away the layers of paint, reconstructing lost parts, and rediscovering the beauty of the design. You learn a lot in this process.
Restoring the Supply Chain
Two years ago, there were empty shelves from panic buying. Today, while the shelves aren't bare, there are still supply issues. Whereas panic buying, channel shifts, and inflexible supply chains created mass shortages, now the conditions include escalated consumer demand, transportation strains, and manufacturing struggles. The in-stock percentage for consumer products is stuck at 89% as of Feb 12 compared to 95% for pre-pandemic levels. And this is being seen around a broad range of categories. Food & Bev is at 87%, Sports Drinks 79%, General Merchandise 86%, and Beauty Fragrances 76%.
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Increased worker sicknesses brought on by the omicron variant and employee turnover have been reported as primary sources for this drop. The IHS Markit's composite purchasing managers Index – a manufacturing and services sectors measurement – fell to an 18-month low in January. And if history has shown us anything, we can expect this drop to be felt for some time. Additionally, consumer behavior continues to impact supply, and months after panic buying, consumers still buy in bulk. This was unexpected. According to a recent WSJ analysis, shoppers have bought bigger homes, loaded their pantries, and still cook more at home. They remained concerned about being caught without essentials and avoiding what happened before. This buying behavior is reflected in companies' financials. Sales at bulk retailers Costco, Sam's Club, and BJ's Wholesale Club rose 26.6% in dollars and 18% in volume during Q4, compared to the same quarter in 2019 - far more than any other type of retail business.
Need Solutions, Not Excuses
CPG companies are under no illusion. They know that their supply problems are here for the foreseeable future. But they are under increased pressure from their retail partners and bottom line to solve this problem. Our clients have openly shared their frustrations and challenges, and I've paraphrased some of that below.
"I'm on the phone constantly with my most important customer in the region who is trying to find out why they are always getting shipment delays due to our supply shortages and why we cannot deliver to the commitments."
"We need more real-time visibility about who is going to suffer shipment delays on the current allocation plan and even the ability to juggle shipments in a way that reduces OTIF fines."
"We typically had 95-98% fill rate, and now we're around 60-70%. The on-shelf availability of our products is low and our OTIF fees are on the rise. Our retail partners are upset, and our people are always putting out fires. I need it fixed."
The Solution: Intelligent Order Promising
The traditional Available to Promise approach is failing, and that is why we developed a solution that embeds consumer demand, market insight, and strategic execution into the process. We call this solution Intelligent Order Promising, and what is it? Well, I'll go through two definitions.
The quick definition is that Intelligent Order Promising (IOP) significantly improves your Available to Promise process and reduces OTIF fees by ensuring your key customers get their fair share. The detailed (and technical) definition is as follows:
Intelligent Order Processing (IOP) applies sophisticated algorithms to near-term consumption sensing data, guided by pre-determined strategic business objectives and customer segmentation, to produce allocation recommendations across all channels that ensure optimized business performance despite sudden gaps between demand and supply. But most importantly, it delivers the power of machine learning in easy-to-follow reports guided by flexible business rules for different business conditions.
The next question many ask is, "How does IOP differ from Available to Promise (ATP) bolt-on functionality in the manufacturer's ERP system?" Before I go into this, let me back up a bit, as context is important here. Before the pandemic, many supply chains were stable, steady, and with repeatable demand patterns. Shortages were the exception. Hence, the processes and the systems that support them weren't designed to handle today's situation. Today the exception is the standard process. Demand patterns no longer reflect the true demand due to the prolonged demand constraint. Our antuit.ai co-CEO, Sivakumar Lakshmanan, says Business as Unusual - which adequately frames today's market.
So how is IOP different than bolt-on ATP functionality? Those bolt-on ATP and Order Promising systems have limited capability. They typically require 3 to 4 months to recalibrate – this is no longer the timeframe in which business is expected to respond. IOP enables streamlined handling of order fulfillment adjustments. It builds a bridge between strategic segments, business goals, and day-to-day execution that can adapt immediately when those strategic goals change. The net result is better management and deployment of on-hand and inbound supply in a way that respects the customer segmentation strategy that best achieves your business KPIs.
To simplify further, Intelligent Order Promising delivers the following for CPG manufacturers:
Focus on Key Customers
Customer service strategy and segmentation are part of the analysis, improving inventory efficacy and overall fill rates for customers.
Do More with Less
Eliminates divergent processes and alleviates high-touch manual work through automation, enhanced visibility, standardization, and transparency of decision criteria.
Execute Strategically
Responsive, strategic guidance eradicates business lags, reduces expedites, and creates responsiveness for today's business dynamics.
Increase on-shelf availability and reduce OTIF Fines
Increase on-shelf availability and reduces OTIF risks and penalties by optimizing inventory decisions across retail partners down to their stores and warehouses, channels, and strategies for every distribution center.
Intelligent Order Processing (IOP) is a new area of AI application that has arisen out of the hard learnings of 2020. If you want to gain additional information about it, you can read our eBook or a recent case study.
The Surprise
Oh, I didn't forget about the surprise in the dresser that I restored. The dresser had a stuck drawer, and the lady I bought it from hadn't checked it. The dresser was her mother's, and she just wanted to get rid of it. I pried opened the drawer after taking it home, and what I found astounded me: Life magazines dating from the '50s, some trinkets, and an even more precious item. Inside was a letter from a WW2 soldier to his wife, written when he was in France. Truly amazing. It was from the seller's grandfather to her grandmother. When I returned the content I found in the drawer, she cared little about the trinkets but teared up over the letter. What was given to her grandmother, passed to her mother, is returned to her. She already told me that she will pass this priceless gift to her children. And me, well, I experienced the greatest satisfaction – restoration.