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The Next Generation Supply Chain Management Software in the European Food Industry - NexGenFSCM

Periodic Reporting for period 2 - NexGenFSCM (The Next Generation Supply Chain Management Software in the European Food Industry - NexGenFSCM)

Reporting period: 2017-07-01 to 2018-06-30

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, RELEX’s solution is built on a unique columnar in-memory database and uses optimisation algorithms based on the supply chain research of the company founders. 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.

RELEX’s solution is 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 RELEX’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.

During the innovation project RELEX was able to further develop its optimization algorithms and test their usability in real life pilot cases. The results in the pilot cases, which were done in three different European countries, were very promising: they proved that the new optimization algorithms work well in real-life cases. For example RELEX was able to reduce pilot customer’s fleet’s CO2 emissions by 23% and reduce customer’s spoilage by 23.9%. The scalability improvements achieved in this project will further strengthen RELEX performance especially with larger Tier1 customers and therefore distinguish RELEX even further from its competitors. With the help of this project RELEX has also localized its offering to meet different needs in various countries.

The innovation project has enabled RELEX to stay on its rapid growth track and to serve even larger customers throughout the world.
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 three very large European grocery retailers in pilot projects.

In the first pilot project, 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.

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.

In the third pilot project RELEX focused mainly on developing their calculation logic to improve the demand forecast, as this would then drive the enhanced ordering optimizations to ensure better availability, reduced inventories and reduced spoilages. Pilot customer 3 could optimize its replenishment and with remarkable results:
• Out of stocks reduced by 7.3%
• Inventory reduced by 17.1 %
• Spoilage reduced by 23.9%
• Average availability of 98.18%

The piloted Weather forecasting and Cannibalization & halo modules are finished, commercialized and they have been already sold to customers.

RELEX has been able to develop its software architecture to support clustering for improved scalability. The scalability improvements are currently at in-house test phase and we are looking for to start exploiting them in customers environments during the first half of 2019. The new scalability improvements enable RELEX to make the order proposal calculations even for the biggest customers with same speed as it does to the smaller customers. This will strengthen RELEX’s competitive advantage especially with the Tier1 customers which is the customer segment that RELEX is focusing on.

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.

During the innovation project RELEX has released 11 press releases, five non-scientific and non-peer-reviewed publications and 200 social media publications and participated to four trade fairs in three different countries. The web page of the project (https://www.relexsolutions.com/horizon-2020-nexgenfscm/) has been viewed 17 883 times.
During this project RELEX has been able to develop and commercialize new forecasting techniques

The project has also enhanced RELEX’s organizational capability for commercializing the new solution. The improved sales model has yielded results already during the project as it can be seen to have contributed positively to RELEX’s revenue growth already in 2017. In 2017, RELEX’s annual SaaS revenue growth accelerated from 54.1 % to 74.6 % and reached 13.17 million euros. At the same time RELEX’s overall revenue grew from 18.49 million euros to 26.35 million euros. Most importantly, as a result of the innovation project, RELEX is now well positioned to capture the market potential of food retail and wholesale globally. In 2018-2021, the annual growth rate of the company is expected to be approximately 45 % per annum and the total revenue is expected to increase from 26.35 million euros in 2017 to 114 million euros in 2021. 80 % of the growth, or 70.2 million euros of the projected 2021 revenue, is expected to be generated from food retail and wholesale sector with the new innovation driving the growth. The even more ambitious target for 2025 is to achieve revenue of 500 million euros.

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

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 sector’s estimated market potential in Europe. This innovation project has been an enabled RELEX to invest to research and development that is needed to succeed in the above mentioned ambitious goals.