This could be the end of forecast error

Decade-long technology development pays off:  "flowcasting" pilot leads to lower inventories, fewer stockouts

Sidney Hill, executive editor -- Manufacturing Business Technology, 8/19/2009 5:20:14 AM

Supply chain execution software supplier RedPrairie believes it has discovered the answer to perhaps the most difficult problem confronting consumer goods manufacturers: How to keep excess inventory out of the supply chain without leaving retail customers short of needed merchandise.
The answer, according to RedPrairie, is a technique called flowcasting. The technique was developed by Andre Martin and Darryl Landvater, two entrepreneurs who have spent their careers attacking various supply chain problems.
They have devoted the past decade to developing technology to support the concept of flowcasting, which Landvater describes as store-level distribution requirements planning (DRP).
Typically, DRP takes place at distribution centers, with planners using various techniques and technologies-most based on statistical forecasting-to determine the level and mix of inventory to keep retail stores adequately stocked without busting the corporate budget.
"Trying to do forecasting at the DC level is like sitting behind a wall and trying to figure out what's happening on the other side by looking at what's occasionally thrown over on your side, which in this case would be orders," Landvater said in a recent interview. "We're breaking down that wall."
With flowcasting, the retailer must agree to feed the manufacturer point-of-sale data on all transactions in its stores. Tracking sold goods backward through the supply chain gives the manufacturer a clear picture of not only what goods are selling but which DCs and plants those goods came from. The manufacturer can then use that information to predict when and where its next group of orders will originate.
So far, Martin and Landvater can only count one pilot implementation of their flowcasting solution, but the companies involved—Sam's Club and one of its large consumer packaged goods suppliers—provide instant credibility. In fact, RedPrairie believes so strongly in the concept that it recently formed the RedPrairie Collaborative Forecasting Group, a joint venture that calls for adding the application Martin and Landvater developed to RedPrairie supply chain execution software portfolio.
The new entity is targeting customers in food and beverage, consumer packaged goods, consumer electronics, and high-volume retailers. Like the pilot, this venture represents a coup for Martin and Landvater, who for years struggled to get anyone in the industry to take the concept of flowcasting seriously.
"We went to all of the DRP software suppliers and said, ‘You should work at the store level," Landvater recalls. "They told us were nuts; that no program could handle the volume [of goods flowing through retail stores]. Our choices were to give up or prove that it could be done. So, in a somewhat radical move, we created a piece of software that proved it could be done."
Next came the pilot, in which the software plans the flow of 115 items from 40 distribution centers to 20 Sam's Club distribution centers and 599 Sam's Club stores.
In the 1.5 years this pilot has been running, Sam's Club has increased inventory turns while reducing stock outs. The packaged goods manufacturer has taken significant inventory out of the overall supply chain and dramatically cut safety stock levels.
"The work we've done with [with the pilot] is outstanding," Landvater declared." We're able to predict orders from the ship-to location level. We can predict when an order from a given DC would go to [the manufacturer] a month in advance. The average absolute error is 2 to 3 days. That's so much better than statistical forecasting."