With the COVID-19 pandemic, geopolitical disruptions, and inflation impacting supply chains, how can companies create plans that meet business objectives? During an EDGE 2023 Conference session, food company Nestle and automotive spare parts distributor LKQ Europe argued that adopting an "outside-in" approach to planning can improve forecast accuracy and better manage increased variability.
Both companies recently conducted pilot programs using the "outside-in" methodology to develop strategies to mitigate risks and plan for disruptions. "[Outside-in planning] is the idea of bringing in external data while also looking cross-functionally across your organization, sharing information, and looking at data in a way that supports each function's goals," said Margo Cohen, senior director of advanced analytics supply chain at Nestle USA. "Essentially, it's a different view of the same information."
By rethinking its planning process, Nestle was able to increase forecast accuracy by 15% and reduce its inventory by up to 10%. The food and beverage company was also able to improve its decision-making abilities by using a collaborative dashboard throughout its supply chain.
For European distributor LKQ Europe, its "outside-in planning" pilot program focused on answering the question "What is the impact of inflation on optimal inventory levels for spare parts?" The company decided to move away from forecast targets and calculate the bullwhip effect (the demand variability percentage between its suppliers, it's branch replenishment locations, and its customers) to improve forecast accuracy. By using outside data along with its inside operations data, LKQ Europe was able to reduce its bullwhip effect and create a balanced scorecard approach to develop role-based views of demand and execution to improve key performance indicators.
"When we work in a volatile environments, it's important to keep our supply chains in sync," said Nicole Miara, digital transformation lead at LKQ Europe.
For both Nestle and LKQ Europe, "outside-in planning" has made a significant impact on their supply chain operations.