Supply Chain Matters took special note to a published report by The Wall Street Journal, Absolut Mixes Machine learning Into Its Spirits Supply Chain. (Paid subscription required)
The principle reason was that it describes a common lament that we often pick-up in conversations: “The way we are managing the supply chain is not working.” This was the case outlined by the WSJ from Absolut’s director of manufacturing and supply chain. The report describes the approach as leveraging modern supply chain technology, in this case, machine learning leveraging product demand planning: “to maintain a decidedly old-school approach to its production.” Spirits producers such as Absolut operate on over 100-year-old production and spirits aging principles. The report goes on to describe: “It (the business planning model) was in keeping with its artisanal traditions but was wildly out of step with the direction global alcohol business was heading.”
For consumer product focused industry, business models are in a constant state of change driven by more demanding and market educated consumers, and by industry change that has new advanced process and technology invested disruptors changing retail and consumer products competitive landscapes.
New, more innovate products are continually coming to market to meet changing consumer tastes. In the case of Absolut, SKU count increased over 20 percent and the number of flavors grew from 11 to 18. Older legacy planning models, based on historic forecasts or generic product groupings, are challenged to accurately leverage needs for product demand sensing.
It involves looking beyond what may appear as visible challenges, in the Absolut case, excess inventory, to the ongoing market changes, right products delivered to appropriate channels, and geographic regions based on advanced analytics related to customer demand patterns. The spirits provider plans a tight schedule with just three hours of safety stock on-hand at any time. According to the report, supply arrives every hour. Three years since the leveraging of machine learning enhanced demand planning, the spirits producer has maintained the same delivery performance with a reported lower overall inventory.
If readers have the opportunity, we recommend a reading of this report. It provides a practical example of leveraging advanced technology to address a well identified industry and specific business problem, contrasted to finding ways to pilot or sponsor advanced technology pilots.