The Opportunity
- The client relies heavily on promotions for many of their products, and future planned promotions are taken into account in demand planning and supply decisions. However, they found that sales account managers were consistently optimistic in terms of the levels of support they expected to get when offering their retail customers promotional incentives. This led to bloated inventory and product waste.
Our Approach
- We designed a feedback system for the managers which modeled historical promotional history and compared it to the expected future support numbers they would enter into a planning tool. Borrowing concepts from the insurance industry, using complex statistical distribution fitting, modeling and simulation, we were able to assign a probability of the future planned event occurring at the support level specified in the manager’s input.
The Impact
- Their planning tool was modified to have visual indicators of the promotional risk in their plans. A stoplight system (red/yellow/green) immediately draws the eye to where the planner may need to make revisions. If it is red, it is very unlikely they will get that level of support, based on historical performance.
- The company was able to reduce inventory and wasted product by producing more realistic, data-driven forecasts, versus human intuition.