Planning Demand for the World’s Second Most Popular Drink
I have to admit, I wasn’t much of a tea drinker before I moved to Germany. I typically would only turn to the beverage if I was fighting the flu, nursing a nagging sore throat, or, in the case of over-sweetened iced tea drinks, while trying to cool down under the hot California sun. Now, after experiencing several ice-cold winters in Germany, I have come to enjoy the large variety of flavors and functional benefits this drink has to offer. Drinking a hot tea does not, however, have to be constrained to cold winter months, as various studies have shown that drinking a hot beverage on a hot summer day can actually be quite effective in cooling the body down.
Tea is the world’s second most popular drink. Believe it or not, Turkey is considered the biggest tea drinking country in the world with a per capita consumption of 6.96 pounds. This is of course an interesting statistic that seems to support the cooling effect that a hot cup of tea can have on the body, as Turkey is known for its hot summers and mild winters. Whatever purpose your cup of tea serves, it is safe to say that the functionality, seasonality, variety and innovative nature of this beverage make for a dynamic and challenging market.
The tea market, much like the food market in general, is influenced by several factors which can increase the complexity of planning for demand. Demand for tea, for example, is subject to geographical factors such as customs and traditions as well as weather conditions. On the same note, the seasonality aspect can create waves of demand, especially for certain flavors in certain markets during certain months. And speaking of flavors, in order to remain competitive, tea manufacturers must bring new and innovative flavors to the market.
These factors all create a challenging situation for the demand planning processes within the tea market. A dependable demand plan must be able to answer the following questions: How have consumer buying habits developed over the last several months? What flavors/varieties are in demand right now? And in what regions? Is there demand for new flavors? What materials and in what amount will be needed to meet demand?
Now imagine being presented with the challenge of planning demand for an operation that processes 35,000 tons of tea into 13 billion tea bags every year. Lining up this immense number of tea bags would create a chain 680,000 km long that circles the world 17 times and covers the distance between planet Earth and the moon 1.8 times. That is a lot of tea!
This is exactly the challenge that the Ostfriesische Teegesellschaft (OTG) is faced with. OTG was founded in 1907 and has since secured itself a high ranking in the German tea market with its top brands Meßmer, MILFORD and OnnO. Planning for demand in this complex, highly competitive market is no easy task, which is why OTG turned to forecast analytics to help with the planning efforts. The company quickly identified the need for a precise evaluation of market developments, forecast creation and scenario/alternative testing. Using advanced algorithms and operations research, OTG has, since 2010, been able to successfully plan for demand to meet its forecasting probability goals.
Using demand planning software has provided OTG with the opportunity to plan for all brands centrally. Detailed analyses of current and future developments are available at the click of a button. Implementing a system that is able to handle enormous amounts of data provides OTG with reliable decision support for demand planning no matter the time period, market, product, region or customer that is called into question. With its cutting edge demand planning software, OTG has been able to reduce its planning effort and keep its inventory levels at a minimum, while simultaneously increasing planning accuracy and product availability.
To optimize inventory processes further, the company also implements statistical sampling as a substitute for yearly full physical counts. We have discussed at length on this blog the benefits associated with implementing the statsistical sampling counting method, and OTG serves as another practical example. Instead of counting over 22,000 different items, the company is able to count approximately 1800 items which in the end, deliver an accurate and efficient inventory result.
It is safe to say that success is brewing in the OTG warehouses.
Success Story - Demand Planning at OTG
To read more about OTG’s demand planning successI suggest you request a copy of the full report here.