Moving Beyond Your History
Many remember ToolsGroup as a competitor in the supply chain optimization market.1 Optimization is a mystical, ritualistic practice done by mathematical and supply chain geeks as they plan their supply chain designs and inventory levels. In most companies, users who deploy optimization often don’t go beyond a strategy exercise (annual, quarterly and monthly planning). Those tasked are left to Advanced Planning and Scheduling, and Demand Forecasting and Replenishment modules.
But ToolsGroup’s positioning in the market, optimizing the zone between retailer demand and the supplier’s flexibility to respond with the right level of inventory, gave them a view into what might be wrong with the basic demand planning practiced by so many CPG companies. And so, over the last few years they have been building out their SO99 product to include demand modules — Demand Planning, Demand Sensing, Trade Promotion, and consensus planning — that compete with traditional demand forecasting providers.
Recently, in Boston, ToolsGroup hosted their US User Forum, which was attended by some great brand companies. Not only did we hear from ToolsGroup about their product roadmap, but we also heard from and spoke to attendees from Colgate, Energizer, CVS, DANONE, and other big, brand CPG and retail companies.
So why, I wonder, do they still call themselves ‘Tools’? Over the years ToolsGroup has migrated from a ‘black box of algorithms’ for solving complex supply chain challenges to a suite of demand solutions, or as Joe Shamir (at left), CEO of ToolsGroup stated, “You don’t have to be an expert to do planning anymore.” So they are moving beyond a purely mathematical approach to a deeply insightful yet uncomplicated user experience with software applications that enable planners to learn.2
Beyond Tools — 21st Century Software
Once in a while, as I sit through these types of events, I learn something important that I think can have a big impact on the user’s ability to be successful, and it causes me to update my viewpoint of supply chain technology. I had two ‘Aha’ moments while at the ToolsGroup User Forum.
#1 — User Experience and Machine Learning Technology: Challenges in deploying software across any sector are a constant concern for users and developers alike. So ToolsGroup has incorporated machine learning technology in their software.
Without providing you with a technical treatise on the subtler aspects of this, just envision yourself learning from your mistakes (as your parents relentlessly coached you to do). The software monitors demand and supply signals and generates rules that become the underlying logic of your system. And these rules, unlike AI technologies of the past, are easily understood by users. So users can actually look at the rules and understand and learn from them, or modify them as their experience in demand planning grows.
As more customers use this foundation, of course, ToolsGroup will be able to develop a large pre-built library of rules to help customers implement their planning solutions and deal with the vast array of products with unique demand patterns.
#2 — Media Impact Forecasting: This was a fascinating discussion about the challenges in creating accurate demand planning and successful trade promotions.
In stable, long-term product categories, the week-to-week demand and supply picture may not change too much. Yes, as the weather gets colder we eat more soup. And as the weather gets warmer we drink more cold drinks. But we have accounted for these changes in seasonal forecasts. What DANONE told the audience at this user forum is that in spite of these tools and concepts, they still had challenges in forecasting. They stated that, “Advertising and promotions are the main variables that affect our baseline forecasts.” Thus, seasonal forecasting models are insufficient, and implementation of Media Impact Forecasting (MIF) is needed.
Promotions and advertising, yours and theirs (your competitors) can create havoc on week-to-week demand. And with short-shelf-life products like food, it is critical to gain insight, quickly, into the impact of promotions. Often, companies run promos as a normal part of their relationship with their retailers, but they don’t really know what the impact will be.
In CPG, the practice of promotions is very pervasive. Yet we have poor insight into the real market impact on demand, sales, profit, and potential cannibalization.3 And with promotions going viral on social networks, companies really need to gain more control. Over forecast and you wind up with spoilage or further markdowns, reducing your margins even more. Under forecast and you have large numbers of dissatisfied customers.
Collaboration Required for Success
Critical to the successful use of MIF is collaborative sharing of data between supplier and retailers.These two views, when combined, create a more complete picture of the impact of these activities on the retail experience. Retailers and suppliers who use collaborative forecasting methods and category management are in a good position to leverage MIF to improve the quality of the promotion plan, and thus, the success of the promotion.
And ToolsGroup? Conclusion
In general, the question always remains about domain leadership vs. the enterprise suite. I asked ToolsGroup customers, who clearly have bought big ERPs, “Why go with ToolsGroup?” The answer was stated in clear and confident responses: We tried working with our ERPs (one firm tried developing the solutions themselves), but we just did not get the quality of analytics — the better answers — with them.
These and other impressive innovations that ToolsGroup has developed have moved them from just optimization into a different, broader position in the supply chain software sector.
The MIF, smarter software, and collaborative planning should give ToolsGroup a bigger footprint within the CPG/Retail sector they serve, and provide a unique approach to the challenges inherent in this multi-channel world. That puts ToolsGroup in the epicenter — surely a more strategic position — with their customers.
And with two hundred customers in thirty-one countries, it looks like the market has taken notice.
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2 Logility’s acquisition of optimization as well as IBM’s purchase of Ilog, also demonstrate the kind of changes in the optimization market that allow broader market appeal.
3 More about promotion-management leadership concepts will be discussion in “Two Sides of Demand,” coming in future issues of the brief.
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