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Machine Learning - A Giant Leap for

Supply Chain Forecasting


Track 4 Session 5

Patrick Smith
General Manager, North America
ToolsGroup
Psmith@toolsgroup.com
617-600-7255
www.Toolsgroup.com

2015

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Abstract
Supply Chain is the highway and demand forecasting controls the
traffic. However, many supply chains find their speed and flow
impeded by unseen weakness in forecasts. Demand modeling and
machine learning identify these weaknesses and removes them as
obstacles to supply chain growth. At the heart of demand modeling
and machine learning is an algorithm that "learns" from data
building ever more accurate predictors of demand to drive supply
chain planning. This game-changing topic may be the secret to
reduce costs and chaos.

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Agenda
Supply Chain Trends
How Forecasting has Evolved
Forecastings Role in the Supply Chain Process
Approaches to Modeling Demand
What is Machine Learning?
Machine Learning Case Studies:
- Danone
- Lennox
- Wayfair
Key Takeaways
Conference Cloud
Questions
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ToolsGroup

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of Niches
Key
Trends: Exploding Omni-Channel
Driving Supply Chain Complexity

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of Niches
Key
Trends: Requirement for Higher
Customer Service Levels

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of Niches
Key
Trends: Evolving Business Models

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Multiple Drivers to Increasing Demand


Volatility and The Long Tail
Drivers

Sales Volumes

Shrinking

Growing

Closer to customer

More responsive high


granularity replenishment
cycles (time buckets smaller)

Promotional Activity

Product Variety

Service & Availability

Sku Count

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Deloitte Study: Supply Chain


Challenges Drive New Approaches St

Companies that continue to utilize traditional supply chain models will


struggle to remain competitive and deliver orders that are complete,
accurate and on-time.
Deloitte 2015 Industry Report
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2015

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Drive an Integrated End-to-End Demand Signal


and Replenishment Response Across the Value Chain

Your Network

Market Channels

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Demand Modeling: A Probability Based Approach


to Demand Analytics
Demand Modeling Analytics defines the statistical demand behavior) for
each SKU/Location, in terms of: order/POS frequency, order line size, order
quantity at a daily level

Risk to
Service

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Demand Modeling:
Slower Moving Item Long Tail Demand

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Demand Modeling Analytics:


Slower Moving Item at a Daily Level

Forecast is
relatively low

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But demand
is 2X the
forecast

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Demand Modeling Analytics:


Pattern Recognition
Green Bars =
Historical
orders/POS

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Red Line =
Past and future
forecast

&

Orange Bars =
Future probability of
orders/POS demand
occurring (day and
quantity)

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Demand Modeling Analytics:


Driving Daily Adjustments to the Forecast

Green Line = Past and


future demand
(orders/POS)

Blue Line = Demand


Sensing forecast that is
automatically adjusting
to the demand trend
(pattern) of the green
line

Rolling future horizon

Red Line = Past and


future forecast RE:
statistical or S&OP
forecast
We are here
12/22/14

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What is Machine Learning?


Evolution of Demand Analytics
Machine Learning is a branch of Artificial Intelligence capable of
modeling complex phenomena through the correlation among vast
amounts of raw data.
A Machine Learning Engine (MLE) models demand shaping
behavior as a function of a high number of external
variables.
Analyzing both
quantitative and
qualitative variables

Automatic
Model
Construction

Creating boolean,
human intelligible
rules

Automatic multidimensional clustering

Creating a relevance ranking


both of rules and single
variables
Run very fast with low
hardware
requirements

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Machine Learning Example: Adding Value to


Demand Modeling / Promotional Forecasting

Promotions
Media

Promo
Variables
Media
Variables

Web

Web
Indicator
Consumer
s
Attributes
NPI
Variables

Market Model

New Products

Statistical

Promotional
Lift
Halo Effect
Segment
Specific Lift
NPI Launch
Profiles
Seasonality
Web Lift

Base-Line
Processing

Demand
Modeling
Uplift
Projection

Historical Demand

Market, Product,
and Demand
Datasets

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Case Study: Danone

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Case Study: Lennox

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Case Study: Wayfair


Program Growth vs Stock Out

350%

100%

Forecast Error (MAPE)

80%

250%

60%

150%

40%

50%

20%

-50%

2012
Program Growth

2013
Stock Out

2012 - BEFORE

Inventory Turns

10

0%

5%

4%

3%

2%

1%

2013 - AFTER

Unhealthy Inventory

0%
2012 - BEFORE

2013 - AFTER

2012 - BEFORE

2013 - AFTER

Increased Efficiency with Dramatic Business Growth


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Drive an Integrated End-to-End Demand Signal


and Replenishment Response Across the Value Chain

Your Network

Market Channels

2015

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&

L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y D E M AT I C

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Key Takeaways
The long tail of demand is a real issue that requires a different

approach to drive the right inventory to service trade-off.


Forecast accuracy is not an appropriate approach to long tail

demandit just doesnt work. Model demand dont just forecast it.
Cognitive learning is the future.there is signal in big data that

can operationalized in the strategic to tactical planning process.


Automation - Let the technology do the heavy lifting and shift the

focus of the planning community to deliver the appropriate extrinsic


input, the analysis, and insights from the technology to shorten the
time to value.
Best-of-breed technology coupled with existing investments is

required to drive an end-2-end planning process to unlock value in the


organization (people and processes as well).

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Conference Cloud
Additional Resources
Title

Type

Supply Chain Brain: Artificial Intelligence


Meets Inventory Optimization
Supply Chain Innovation: Don't Forecast
Demand, Model Your Demand

Link

Article

bit.ly/15gI6iT

ToolsGroup Blog

bit.ly/1z3tRGd

Rise of the machines - predictive analytics

ToolsGroup Blog

bit.ly/1CPjIRR

Interview with Rulex - machine learning

ToolsGroup Blog

bit.ly/1B5dQU5

Granarolo Case Study

Case Study

bit.ly/1AAeabT

The Evolution of Forecasting Infographic

Infographic

bit.ly/1MaORDu

Supply Chain Quarterly: Machine learning:


Article
A new tool for better forecasting

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bit.ly/1wjHbp4

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Questions

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