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Demand & Supply Chain Management Evolution

Document Detail
Language: English

Winning the Inventory Battle in Consumer Electronics


Company: Logility
Tag: Consumer Electronics
Demand Planning Process
Inventory Optimization

In the consumer electronics industry, product shelf lives are short and, according to Gartner, the greatest margin occurs during a successful product launch. So it’s not surprising that consumer electronics SKUs are proliferating, as are the channels, customers and locations through which these products must be distributed. But 50% of new product introductions fail to achieve success and almost half of those failures are due to initial misreads of market expectations. Why? From a supply chain standpoint the battle for profitability turns largely on two key disciplines: accurate demand planning process and effective multi-echelon inventory optimization.
The threats to success are significant in an industry where the profitable period of a product’s lifespan may be as short as three months. Forecasts must often be generated with insufficient precedents. Global sourcing and contract manufacturing push lead times longer and supply variability higher. Launching products into conditions of uncertain demand can result in too much safety stock and over-reactive inventory adjustments that sap profitability. Service parts for big-ticket electronics items further complicate the plan. These and other factors make it difficult to optimize inventory levels for every SKU location in the network. There is seldom a chance to “make it up later” because short product life spans leave less time for error correction, and soon it’s too late to recoup lost revenue or avoid obsolescence costs. That’s why planners feel they have to hit it right from the start. But, according to Gartner, only 65% of demand planning forecasts are accurate and 75% of new products fall short of forecast expectations.
Consumer electronics manufacturers can improve their odds during the short-lived “product moment of truth” with better demand planning process and multi-echelon inventory optimization. Mastering these disciplines yields big benefits. According to Gartner, companies that do a better job forecasting demand carry 15% less inventory, have 17% stronger order fulfillment, and 35% shorter cash-to-cash cycle times. It is estimated that a 5% improvement in forecast accuracy yields a 10% improvement in perfect orders (and every 3% improvement in perfect orders increases profit margin by 1%).
The motivation is clear. Leading consumer electronics companies must continually drive their demand planning and inventory optimization expertise to new levels of effectiveness...



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