Why did 11 out of 12 advanced planning system investments fail?

Advanced planning systems are not a shortcut to improved inventory performance. MYSIGMA experience that despite significant investments in advanced planning systems, many companies struggle with inventory performance.

Inventory performance and capital tied up in inventory are strategic areas crucial for competitiveness and profitability. These topics are always on the agenda in boardrooms and?executive management teams.

Over the last decade, MYSIGMA has encountered many companies and clients that have made substantial investments in advanced planning systems with the general purpose of increasing inventory performance and reducing planning resources. A common perception seems to be that such investments will replace organizational competence and improve performance through a magical automated planning process.

MYSIGMA’s experience, however, is quite the opposite. Advanced planning systems require more competence among planners. When we meet planners and ask them about their inventory strategy, we rarely receive a clear answer. Instead, they refer to the system or their implementation partner. This is concerning since there are thousands of ways to set up these systems.

To understand the inventory turnover development for companies that have implemented advanced planning systems, MYSIGMA analysed twelve Swedish companies with annual turnovers ranging from 1 billion SEK to 90 billion SEK. These companies represented different market segments and various types of supply chains and had implemented the advanced planning systems during the measurement period.

Without exploring the reasons behind, MYSIGMA concluded that 11 out of 12 companies had a lower inventory turnover rate in 2022 compared to 2012. Many companies struggled with uncertainties during the pandemic years, and it is evident that advanced formulas did not support companies in maintaining inventory performance. It is also clear that the negative inventory turnover rate trend started well before the pandemic.

When summarizing the COGS and inventory figures for all included companies, a clear trend emerged. The average inventory turnover rate in 2012 was 4, while in 2022 it had deteriorated to 2.7, a 30% increase in inventory levels in 2022 compared to 2012!

Looking at the performance of most companies that have invested in advanced planning systems, it is evident that either the implementation partner has misunderstood the business characteristics, or the client is unable to manage the system (or both).

So, what is the way to reach improved inventory performance? MYSIGMA’s recommendations are:

• Establish an Inventory and Distribution Strategy: Ensure it is connected to the business model and targets. This strategy is business-critical but often neglected in data-driven inventory control implementations.
• Consider Different Types of Demand: Segment the demand and apply a differentiated supply setup.
• Evaluate Competence: Assess the team’s skills to determine the appropriate complexity level of the data solution.
• Design Inventory and Planning Processes: Set clear targets and responsibilities.
• Establish Clear Follow-Up: Detect process deviations and understand the reasons behind them.

Only then should you considering which IT solution to choose!

Contact Dan Schultz to elaborate on your challenges

Want to know more? Visit www.MYSIGMA.se