Sweet success: A SAS sales forecasting solution helps Nestl'e Italiana match supply with demand

Nestl'e Italiana SpA, an arm of multinational giant Nestl'e Group, dominates Italy's food industry. Its phenomenally successful brands, including Perugina, Buitoni, Nescaf'e, Kit Kat, Smarties, Polo and Nesquik, are consumed by millions of people every day. Despite its strong position in the market, it is not immune to having to compete in a complex business environment.

Nestl'e Italiana must oversee a vast product range and thousands of distribution channels, and react to shifts in seasonal demand and a product renewal rate that can hit 60% per annum due to changing consumer behaviour. Moreover, because Nestl'e Italiana is part of an international group, commercial, logistical and industrial functions across multiple countries are often subject to reorganisation.

"We need to bring products to market at the right moment, flanked by appropriate sales and marketing," explains Guelfo Zanini, IT Systems Manager, Nestl'e Italiana.

"Our goals are to deliver the right level of customer service quickly, to keep inventory levels as lean as possible, and to minimise profit losses from product returns or surpluses. In our business, the cost of everything from packaging to logistics can be huge. SAS helps us to ensure that sales forecasting and demand planning are closely aligned with production plans, procurement and distribution; the end result is an integrated planning process."

Nestl'e has a SAS solution for sales forecasting based on SAS Enterprise Miner and Enterprise Guide which was first rolled out in the Confectionery Division, which represents one-sixth of Nestl'e Italiana's business. According to Zanini: "We've moved from subjective opinions and intuition, albeit based on experience, to objective facts. In a short time, sales forecasting accuracy improved by 25%. Both our commercial and operational performance have improved."

"Our business involves two key processes: demand generation and delivery organisation," continues Zanini. "Between these we introduced a vital link function, demand planning, to assess the feasibility of the strategy and budget targets set by marketing. These relate to market potential, the current phase of a product's lifecycle, and the results of previous commercial initiatives."

The demand planning function wasn't intended to replace marketing; the planner's job is to be proactive with the market and foster improved relationships between Nestl'e and customers through in-depth sales analyses.

"These form the basis for forecasts against which our targets are verified," says Zanini. "The planner also monitors ongoing results so targets and actions can be adjusted and our forecasts updated. For this new function to work effectively, it needed the right technology. This led us to SAS."

Nestl'e Italiana's business covers many food, beverage and service areas - from pasta and coffee to ice cream, confectionery, bakery products, nutritional products, food services, vending machines and an exports division. When the company decided to reorganise its approach to matching supply with demand, it chose the Confectionery Division as the pilot.

"It's a complex marketplace that includes 'permanent' products like biscuits and chocolate, and seasonal offers that are tied-in to special occasions like Christmas and Easter," says Zanini.

"At Easter, you have only four weeks to gather revenue from seasonal products. At Christmas, you may have six to eight weeks. With newer holidays like Valentine's Day, you only have a week. You need to ensure you don't have too many, or too few, products to match demand. Where Easter falls in the calendar is related to the phases of the moon - if it's early one year, the weather may be colder and certain types of product, like cakes, won't sell. You must be ready to supply other products or to provide something special. Also, public tastes continually change, so how you package and promote products for certain occasions, at Halloween for example, is also important. We wanted to make a strong business case for our new approach, and therefore decided to focus on this complex area."

"There aren't many other software vendors who are able to undertake a project on this scale. SAS provides us with the business intelligence to improve the quality of sales forecasts - in particular looking at trends and seeing the relationship between cause and effect - as well as operational sales forecasts that speed up daily management processes. And, of course, SAS is a global organisation, just like the Nestl'e Group.

"The solution gathers, organises and analyses huge volumes of data - around two terabytes from transactional systems alone - through capabilities that include data warehousing and data mining.

"Powerful models provide sales forecasts and objective parameters for interpreting trends; this provides the integration between demand generated and products supplied. Nestl'e can exploit historical data that goes back five years, identifying what's important and what's not important, and use the results to help launch new products and build market share. By comparing actual sales to forecasts, it refines the models as required. This approach was successfully applied to a previous campaign targeted at Mother's Day products. Historical data was applied to a model and, through an iterative process, the model delivered around 90% accuracy in its sales predictions."

"Our new approach, using SAS, led to a reduction in inventory surpluses of 40% for finished products and 30% for packaging materials," says Zanini. Results such as these have a direct impact on the bottom line.

"At the same time, supply chain service levels improved, product losses were halved, and we achieved a 50% reduction in changes to orders caused by product cancellations or replacements. We expect to achieve further significant improvements in these areas.

"We've also reduced sales and marketing costs, primarily by examining previous targets and then setting more realistic ones. We have greater focus in our promotions, which has resulted in enhanced cost/benefit effectiveness, plus a fuller understanding of market needs. This means product renewals and innovations can be more closely geared to consumer requirements without cannibalising market share from our other products.

"Activities like sales forecasting depend on people with knowledge of the markets, the products, customers and cause/effect relationships," concludes Zanini. "But if those people leave, the business can suffer. That's why SAS is so important - we now have intelligence embedded within the company, which ensures continuity of business knowledge. The benefits are repeatable. We're confident that Nestl'e has taken the right road for success in a marketplace where competition is increasingly aggressive and where you sometimes need more than just excellent products to be a winner."