Demand forecasting is 'the gift that keeps on giving'

Margin realisation continues to be high on the retail agenda, especially in the run-up to special events such as Valentine’s Day and Easter. Naturally, retailers will want to maximise sales and not run out of stock. But if they are left with product and need to ship goods back to warehouses, costs really start mounting up.

This is why, despite the popularity of black Friday as a retail fixture in the run up to Christmas and growing customer expectation of year-round heavy discounts, retailers must not fall into the trap of putting too much inventory into their businesses. If they do, they may be forced into early sales – which was apparent again this December.

Gauging the right stock level is especially critical. Likewise, from a network capacity perspective, careful planning is needed to manage the intensive volume of goods passing through the supply chain. Invariably, the trade-off lies between ensuring capacity in the network and protecting overall margins.

Since discounting also has a big effect on inventory, it is important retailers use all the forecasting tools at their disposal so they can be clear about what volumes they expect and ensure they are capable of modelling the impact. Otherwise they may end up like one convenience retailer left with many unsold cases of champagne after it was unable to repeat the previous year’s unexpected success.

Promotions too can easily fall flat without the use of forecasting tools. A retailer may well fill the shelves with goods discounted by 10 or 15 per cent in the belief the promotion will take care of itself. Yet this is a dangerous approach when stock may fly off the shelves in one region and gather dust in another.

It is here that the same advanced forecasting solutions can offer real protection to margins, by re-forecasting during the promotion, allowing retailers to make significant adjustments. They ensure there is enough stock in the warehouse to pump products to wherever the promotion is really booming.

Through the use of historical data, forecasting solutions can also demonstrate which regions respond well and match the results up to the current promotion. Simply put, a student area might be more receptive to a two-for-one promotion than an affluent area. The tools give the retailer the necessary detail to look at the impact of promotions down at the level of individual stores.

There are many random factors in retail which mean predicting sales can never be 100 per cent accurate. But whatever the occasion, as a critical part of demand-planning, accurate forecasting solutions could well prove to be the gift that keeps on giving.

☛ Kevin Boake is managing director at Barloworld Supply Chain Software.

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