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Report

Teaser, summary, work performed and final results

Periodic Reporting for period 1 - NexGenFSCM (The Next Generation Supply Chain Management Software in the European Food Industry - NexGenFSCM)

Teaser

Summary

Retail Logistics Excellence - RELEX Oy is a Finnish company that has built an innovative supply chain management solution for demand forecasting, inventory optimisation and automated replenishment for manufacturers, retailers and wholesalers. Unlike traditional supply chain management solutions, RELEXâ€™s solution is built on a unique columnar in-memory database and uses optimisation algorithms based on the supply chain research of the company founder. As a result, it is less costly, more flexible and much faster than traditional disc-based solutions. The objective of the innovation project is to increase the efficiency and reduce the spoilage of the food value chain companies by introducing an innovative and disruptive supply chain management solution for food retailers and wholesalers.

When launched, RELEXâ€™s solution will be the only one in retail and wholesale sector that is wholly built on in-memory calculation and analysis and offered to food retailers and wholesalers as a cost effective and innovative SaaS (software as a service) solution over cloud. In addition to the performance leap that the solution enables, with the new forecasting methods food retailers and wholesalers will be able to produce better and more accurate forecasts that result in reduced inventory levels, increased sales and decreased spoilage. The market potential for RELEXâ€™s solution within food retail and wholesale sector is estimated to be valued at 1,2 billion euros globally and 420 million euros in the EU.

Work performed

With the aid of this funding, RELEX implemented major improvements in its product offering in the area of food retail supply chain management. The new models and methods were conceptualized, implemented, tested and validated with two very large European grocery retailers in pilot projects. The first model was stepwise regression modelling of external variables (national salary-payment day).

In the second pilot project, RELEX investigated demand forecast improvements by taking into account external impacts that shape consumer demand. The variance in sales, caused by typical nation-wide salary payment days within the month, was clearly visible from the sample data set. Originally, the root cause was completely unknown and it had to be discovered by combining expert judgment and hypothesis testing, which is a key process element in generalizable methods of accounting for external variables. Taking the forecasting down to individual products in each outlet as accurately as possible was the key development area.

RELEX implemented significant improvements in the method and corresponding forecast accuracy by modelling both the historical and future distances to the salary payment days inside each month. The impacts were automatically estimated from heuristically optimized aggregation levels for each product-outlet combination.

In the same pilot project (2), RELEX investigated demand forecast improvements by taking into account anti-promotions for substitutable products pairs, when one product is positively impacted by promotional activities and the substitute product suffers. The decrease in sales for the non-promoted variant is important to take into account in order to minimize spoilage and retain the limited shelf space for the best-selling products.

RELEX improved the modelling process and concept significantly during the pilot project. Demand-reduction forecast accuracy improved in many specific cases. The pilot project provided good insight into the weaknesses of the process. An additional round of product development took place based on the experiences and results from this project.

In addition to the new functionalities, RELEX has also proceed its development where it continuously seeks ways to intensify its softwareâ€™s server capacity usage. Within this EU funded project RELEX aims to build up capability to offer its solution in cloud environment.

Within this project RELEX has localized its software to serve new language areas. These new localized versions enable RELEX to effectively continue its rapid international growth.

Final results

In the sectors of food retail and wholesale the estimated spoilage reduction, in EU scope, would mean an annual reduction of 11â€“30 million tons in spoiled food, which equals annual food consumption of Canada. This spoilage reduction would reduce CO2 emissions by 22â€“60 million tons, which is over 10 % of EUâ€™s 20-20-20 emission reduction target.

As a financial result of the innovation project, RELEX aims at generating additional annual turnover of 85 million euros from the food retail and wholesale sectors the by the end of 2020. This represents 20 % of the sectorâ€™s estimated market potential in Europe. The proposed project is a strategic initiative for RELEX. RELEXâ€™s strategy is to retain its fast growth by targeting food retail and wholesale markets first in Europe and later globally.