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PREDICTIVE ANALYTICS: REAL LIFE USE CASES


GREGORY L. SCHLEGEL (HTTPS://DEMAND-PLANNING.COM/AUTHOR/GREGORY-SCHLEGEL/)  MARCH 29, 2018 

ADVANCED ANALYTICS (HTTPS://DEMAND-PLANNING.COM/CATEGORY/ANALYTICS/ADVANCED-ANALYTICS/)  DATA


(HTTPS://DEMAND-PLANNING.COM/CATEGORY/ANALYTICS/DATA/)  SUPPLY CHAIN MANAGEMENT (HTTPS://DEMAND-
PLANNING.COM/CATEGORY/PROCESS/SUPPLY-CHAIN-MANAGEMENT/)

Predictive Analytics Is Making Huge Advances In Supply Chain Management

Since 2011, I’ve been teaching Supply Chain Risk Management at Lehigh University.
Developing a new MBA class in Supply Chain Risk for our supply chain MBA students gave us
the opportunity to explore the landscape of Supply Chain disruptions and the statistical tools
and techniques in the areas of Predictive Analytics
(https://ibf.org/knowledge/glossary/predictive-analytics-214) and Big Data
(https://ibf.org/knowledge/glossary/big-data-38) that are improving supply chain
performance. Let’s start with the data landscape as of today, and chat about a few use cases
where Big Data (https://ibf.org/knowledge/glossary/big-data-38) has real,
practical applications.

According to IBM’s 2014 Big Data (https://ibf.org/knowledge/glossary/big-data-38) Study:

More than 90% of all data that exists in the world today was created just 2 years ago!
We’re in an age where more than 2.5 quintillion bytes of data are created EVERY DAY!
That’s more data than all the data in all the libraries in the USA

Here’s IBF’s (http://WWW.IBF.ORG) de nition of  Predictive Analytics:


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“A group of statistical techniques including modelling, machine learning, and data mining that are
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used to analyze current and historical data in an e ort to create projections about the future.”

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The exciting aspect of Predictive Analytics (https://ibf.org/knowledge/glossary/predictive-


analytics-214) in supply chain and risk management is that the computing power has now caught
up to the algorithmic strength in the discipline, creating huge opportunity to leverage these age-
old tools to enhance supply chain performance and mitigate supply chain risk.

Use Cases Reveal Predictive


Analytics To Be a Growth Driver
As of today, there are over 20 di erent industries exploring the use of Predictive Analytics
(https://ibf.org/knowledge/glossary/predictive-analytics-214) and Big Data. A recent E&Y study
stated that 66% of companies with well-established advanced analytics are reporting operating
margins and revenue growth of 15% or more. And 60% of the respondents said they also have
improved their risk pro les. Very exciting! Let’s take a look at some quick-hit use cases.

Lowe’s Robot
Starting in 2016, Lowe’s began to utilize autonomous retail robots to help both customers and
store sta . It helps customers nd products while it helps sta by scanning items and identifying
price discrepancies. More interestingly for us, however, is that it tracks inventory. It knows what is
being sold and where, all in real-time. That provides great visibility into demand and supply,
enabling its supply chain to react faster. The robot is bilingual and driven by Predictive Analytics
(https://ibf.org/knowledge/glossary/predictive-analytics-214) – and could soon be replicated in
a variety of retail environments.

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IBM and Watson


Accenture’s 2016 report into the Internet of Things concluded that Predictive Analytics
(https://ibf.org/knowledge/glossary/predictive-analytics-214) could save up to 12% on
scheduled repairs
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(https://ibf.org/knowledge/glossary/predictive-analytics-214) is truly remarkable. See The IBM


commercial below, where Watson predicts that an elevator will malfunction in 2 days, allowing
the repairman to ‘ x’ it before it breaks.

IBM, a big advocate of end-to-end supply chain management, Predictive Analytics


(https://ibf.org/knowledge/glossary/predictive-analytics-214), Big Data and SCRM, Supply Chain
Risk Management, is leveraging Watson to enhance their SCRM approach. IBM uses Watson to
identify, assess and mitigate supply chain risks, 24/7, 365 days a year.

IBM, The Weather And Retail


Consumer behaviour is strongly in uenced by the weather. IBM, who bought The Weather
Company (http://www.theweathercompany.com/), is using Watson to make stunning predictions
about the weather. Now, making predictions about the weather is nothing new but using
integrating the ndings for better supply chain decisions is. IBM uses databases from The
Weather Company and a variety of of Big Data (https://ibf.org/knowledge/glossary/big-data-
38), including news stories and social media to gure out in real-time how consumers are
reacting to weather conditions, and the subsequent commercial opportunities.

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Their weather predictions coupled with pattern recognition tools are providing forecasts months
in advance, which are then integrated with retail companies’ supply chain data. Armed with this
information, companies can arrange resources accordingly, with Demand Planners able to make
more accurate demand plans, and Sales and Marketing able to promote certain items and price
accordingly (Figure 1).

FIGURE 1

Predicting patterns in weather can mitigate Supply Chain risk

Walmart
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Jon Walker from Tech Emergence (https://www.techemergence.com/inventory-management-


with-machine-learning/) reveals that Walmart has seen some very interesting (and highly
pro table) correlations between weather and consumer spending behavior. The company
noticed that people tend to buy steaks when it’s warm, windy and cloudy. Why exactly? We don’t
know, but they do. Meanwhile, hamburger sales increase in hot and dry weather. They utilized
these correlations to promote hamburgers based on weather predictions and saw an 18%
improvement in beef patty sales. Go gure!

Anecdotally, we know (broadly) how weather will impact spending behavior for di erent
industries, but never before have we have had this volume of data to support ndings, this ability
to reveal cause and e ect, this ability to remove bias, nor this ability to automate the process and
integrate into supply chain systems.

B I G D A T A ( H T T P S : // D E M A N D - P L A N N I N G . C O M / T A G / B I G - D A T A / )

P R E D I C T I V E A N A L Y T I C S ( H T T P S : // D E M A N D - P L A N N I N G . C O M / T A G / P R E D I C T I V E - A N A L Y T I C S / )

W A T S O N ( H T T P S : // D E M A N D - P L A N N I N G . C O M / T A G / W A T S O N / )

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GREGORY L. SCHLEGEL (HTTPS://DEMAND-


PLANNING.COM/AUTHOR/GREGORY-SCHLEGEL/)

Greg has over 25 years' experience with several Fortune 100 companies across multiple
industries. He has held executive positions in systems, sta and plant operations
environments and has been Supply Chain Director, Materials Director, Logistics Manager,
Plant Operations Manager, CIO and Systems Director with companies such as Hercules
Chemical, Sandvik Specialty Steel, International Harvester, Schlumberger, Loral Aerospace
& Defense Electronics, GAF/ISP Specialty Chemicals and IBM Supply Chain Solutions. Greg
has also been an Executive Consultant for IBF and is currently Adjunct Professor of
Enterprise Risk Management at Villanova University.

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