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The problem with new products
According to Terra Technology's "2014 Forecasting Benchmark Study," demand planning and forecasting is only getting harder, and the reason is the increase in new product introductions.
The study, which is now in its fifth year, covers the North American and European businesses of 13 multinational consumer products companies, totaling almost US $200 billion in annual sales. This year, the study found that demand planners are struggling to keep up with product proliferation. The number of items for sale has increased by 30 percent since 2009, the first year of the study. The study also reveals a high rate of product "churn"; in other words, while products are being quickly introduced, they also are being quickly discontinued. More than twice as many new items have been introduced in the past five years as existed in 2009, and on average 85 percent of those new product introductions have since been discontinued.
This increase in products has substantially increased the complexity of demand planners' jobs, says Terra Technology. Demand planners no longer have enough time and resources to create accurate forecasts for all the items that their companies are now selling. Additionally, new products are notoriously more challenging to forecast than existing ones. According to the study, the average weekly forecasting error for new items is 81 percent, 50 percent higher than the error rate for already existing items.
Not surprisingly for a company that develops demand-planning solutions, Terra Technology believes that technology may be able to help. The study argues that automated tools can perform more of the mundane "number-crunching" activities that demand planners do, freeing them up to focus on more high-value, strategic issues.
The full report can be found here.
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