IoT And The Evolution From Forecasting To Accurate Consumption Planning

E.J. Kenney

In a typical consumer products supply chain, planning is a collaborative activity that can involve everyone from raw materials suppliers to manufacturers to distributors. The one group that is not directly engaged, however, are the end consumers who will actually purchase and use the products.

With the advent of IoT, that’s about to change drastically. IoT facilitates access to usage and buying data, giving consumer products companies the ability to evolve from traditional forecasting to planning based on actual consumption.

The Marketing Science Institute quoted Intel Corporation’s Peter Levin: “With cheap sensors, democratized analytics, and new platform tools, we are moving from a ‘models’ to a ‘measures’ world.” This is a good way to see exactly how things are changing. Information will be readily available for manufacturers and suppliers to use to make key decisions regarding products. No longer are we focused on forecasting, but instead on real-time consumption.

IoT is already a part of many supply chains

Inventory and warehouse management, supply chain upper management, and even fleet management are already embracing the use of IoT technology within their operations. McKinsey reports that IoT will have an incredible economic impact of $2.7 to $6.2 trillion by the year 2025. Imagine the amount of data and insight that will come from the projected 50 billion connected devices by the year 2020. Being able to make better supply chain decisions based on analyzing massive quantities of IoT-based data will be a true differentiator. All of this is made possible because IoT creates a more direct connection between production and consumption.

What real-time data means for consumption

Currently, many consumer products manufacturers and distributors are using antiquated forecasting methods to create their “game plan” for the upcoming buying season. Forecasting has long been thought of as the only option. Projecting consumer usage and buying of a product is a highly subjective activity. When companies get forecasting wrong, it creates huge problems.

Forecasting is critical to brands that want to sell as much of a product as possible without oversaturating the market. Recently, the Puma X Sophia Webster Sneakers, a unique look that many consider a “must-have” item, sold out in just one day. With five styles available across the market, the company could have profited more with better production and planning of the product. Not only did this limit sales, but it also impacted the company’s reputation with consumers, encouraging them to turn to competitors’ products that were readily available in stock.

Another example is Kylie Cosmetics, a line of makeup products from Kylie Kardashian-Jenner. The product line sold out within three hours, much like her sister Kim Kardashian’s line of clothing did. With better predicting and analytics, the brand could likely have seen a better initial launch.

The advent of IoT changes all that. It empowers companies by providing a way to capture real data, in real time, directly from consumers. You know when products are being used, you know the demographics of who is using them, and you know the rate of use. All of this translates into a highly effective way of planning.

The question is, then, how is the data captured? Consider, for example, a shoe. A consumer buys a connected sneaker. That sneaker collects data about usage, wear and tear, and overall performance. That information can then be sent back to the company. The company can use this information to make adjustments to its product line—perhaps to boost overall quality—or it can send information about new models to encourage consumers to come back for a replacement.

The company understands who is using the product, where it is being used, and how often it is being used. All of this translates into highly usable data that can transform the company’s further production, new product deployment, and even design.

How can consumption planning improve business processes?

Today’s consumers are digital. They connect through phones, smart homes, and dozens of apps. Consumers benefit from digital services designed to work seamlessly with products that have IoT sensor technology built in.

For consumer products companies, there are substantial benefits in terms of better supply chain visibility. Real-time data gathering and analysis becomes the norm. In this way, advanced supply chains are able to manage product replenishment based on actual consumption rather than forecasts.

With IoT-driven planning, CP companies can operate in a more agile fashion, redirecting products to another location quickly based on actual demand. They know when to produce more products and when to send more – and even when to replenish them directly to a consumer’s home.

Learn how to innovate at scale by incorporating individual innovations back to the core business to drive tangible business value: Accelerating Digital Transformation in Consumer Products. Explore how to bring Industry 4.0 insights into your business today: Industry 4.0: What’s Next?

E.J. Kenney

About E.J. Kenney

E.J. Kenney is the Senior Vice President of Consumer Products Industry Business Unit at SAP. His responsibilities include managing industry business units, business planning and strategy, go to market and investment portfolio for Consumer Products and Wholesale distribution.