THE UTILISATION OF ADVANCED DEMAND FORECASTING TECHNIQUES IN THE SUPPLY CHAIN IS HELPING THE FOOD INDUSTRY LOWER COSTS
About 30 percent of all food produced in the world annually for human consumption gets wasted, i.e. that’s about 1.3 billion tons of food. That constitutes about US$ 680 billion in developed countries and US$ 310 billion in emerging countries, as the UN environment programme reports. Spain is no better than the rest and wastes about 7.7 million tons of food every year, which is quite a lot, compared to the UK - a significantly more populous country - which wastes 6.7 million tons annually.
Now that the battle of keeping our planet clean and healthy is becoming more and more critical, major food waste is a serious problem. Wherever one looks at the supply chain, there seem to be significant opportunities for improvement; from production to retail. In a research conducted for Sumo Analytics among 37 European grocery retailers where 84% of those surveyed claimed that their fresh categories are critical to their operations and an important factor in attracting shoppers into their stores. However, the value of food waste is shockingly high with an average of € 58.7 million and close to € 200 million for the largest retailers. In an industry where the margins are paper thin, those numbers can be critical to profitability.
The respondents illustrated that the implementation of advanced demand forecasting and quantitative supply chain optimization would lead to significantly lower amounts of food waste. Grocery retailers with poor forecasting methodologies see more disruptions in the supply chain and are six times more likely to experience above average food waste quantities than competitors that rely on advanced demand forecasting for optimized replenishment practices.
Those findings seem to go hand in hand with other surveys across the pond where grocery retailers are experiencing 15 to 35% decrease in food waste simply by acquiring advanced demand forecasting practices to reach supply chain optimization and replenishment. Although the number of grocery retailers that have started (or are starting) to implement advanced supply chain solutions like these are growing, a staggering 80% of them are still far behind. It’s obvious that there’s a lot of low hanging fruit for retailers and much cash to be saved.
Notwithstanding the fact that major cost saving is easily attainable, customer satisfaction with fresher products and lesser stockouts is unaccounted for. Simultaneously, quantitative supply chain optimization gives retailers improved operational efficiencies:
Demand forecasting increases the accuracy of the supply chain, as advanced mathematics combined with artificial intelligence deliver superior performance.
Variations in demand based on weekday related information, national and regional holidays, as well as real-time economical data (e.g. GDP, unemployment etc), or weather effects are taken into account.
Integrated supply chains are worthless if demand forecasts are not accurate, but once advanced forecasting has been implemented, the whole supply chain can be optimized. By including safety stock, lead time and inventory levels, the procurement can become more accurate than ever before and allows for optimized inventory levels and distribution.
Separate forecasts for group procurement, individual stores and online sales to make all planning more precise, efficient and optimized.
See how Sumo Analytics can help your organization by generating advanced demand forecasts and implementing quantitative supply chain optimization.