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Have you ever noticed that people always get excited about something new? And they tend to get a tad carried away when they talk about its potential impact.
Big Data seems to be the new kid in school everyone’s talkin bout.
Big Shiny Data.
According to many, Big Shiny Data will revolutionize supply chains, forever changing demand planning. New process and operating models will be required. New technologies will emerge to synthesize and harmonize all this data and magically transform it into actionable information for you and your team.
Big Data’s got some big expectations.
Over the last few weeks I’ve devoured just about everything all the supply chain gurus and experts have written, blogged, published or YouTubed about the subject. Incredibly, most of the folks are talking about factoring in social media updates, in almost real time, into the demand planning process.
Holy smokes batman, that sounds really impressive.
Then I dropped a pant load! I realized that these experts were actually talking about CPG companies factoring in Big Data into their demand planning process. Yup, I make a tweet or a facebook post and P&G can…do what exactly?
No one can tell you what.
Hmmm? If you’ve been a long-time reader of this newsletter and our blog, you’ll scratch your head too. CPG companies really shouldn’t have a demand planning process – at least not for 80% or so of their business.
Instead they should be working with their major retail customers and driving the entire supply chain from the retailers forecast of consumer demand, store by store, or portal by portal.
For a CPG company there is nothing to factor in. Maybe the retailer revised their POS forecast based on Big Data, but I doubt it. Virtually all of this chatter would be noise.
Which brings us to Nate Silver. Nate is a Big Data rock star. A prediction expert who’s one of the world’s leading authorities on using Big Data. He also wrote “The Signal and the Noise” – a groundbreaking book that should be required reading, especially for the supply chain gurus.
What’s Nate think about Big Data, given he’s arguably the world’s leading light on the subject? His take…
“The flood of data means more noise (i.e., useless information) but not necessarily more signal (i.e., truth). I’ve noticed of late an incredible proliferation of that suggest the awesome and incontrovertible prognosticating power of big data. The gist is that the data will help businesses know what consumers will do before they actually do it. “But I don’t see it to be as much of a paradigm shift as some people think,” Silver says. “People sometimes get the idea that you put all this data into a machine, and you press a button and out come miraculous ideas that help your business make a quick 10% profit margin every year and your share price will double.”
Takes a bit of the polish off Big Shiny Data, eh?
Here’s what I think.
All these experts, gurus, consultants, technology vendors and Wiley E. Coyotes, should maybe, just maybe read Nate’s book. If they’re giving advice to CPG companies about factoring in Big Data into the demand planning process then…
Go back and read Dr. Joesph Orlicky’s famous and profound statement. You know, where he proclaimed, 30 years ago that companies should…
Never forecast what you can calculate.
Our colleague Andre Martin and one of his clients, Kraft Foods, recently spoke about the principle of never forecasting what you can calculate. Kraft has this exact process (aka, Flowcasting) in place with two of its largest retailer customers. They used to forecast these customer’s demands. Now they calculate them, using the same system as the retailer sees.
The results? On-shelf availability for the last year was 99.5%+, inventories reduced and an improvement in forecast accuracy, on average across all products, of 45%!
Plus they not only get the forecast for free, both companies can see all projected flows and volumes for a 52 week planning horizon.
Imagine all that while eliminating the forecasting process and NOT worrying at all about Big Shiny Data!