In High Demand: Why Demand Planning and Forecasting are Essential for Modern Retailers
Customer expectations are at an all-time high. Retailers have to provide what customers want. They need to deliver when they want it and where they want it. Some retailers have been able to design their businesses around these expectations to provide a seamless omnichannel experience. But is the customer the only one to benefit from these modern demands? Not necessarily. When retailers place a priority on demand planning and forecasting as part of their overall omnichannel strategy, everyone in the extended supply chain wins. From suppliers, manufacturers to logistics providers and the retailers themselves.
The Risk of Not Making Demand Planning a Part of Your Retail Business A company that consistently over-forecasts reduces working capital unnecessarily. But even more, they will end up having to sell products at much lower margins or worse incur losses. Demand planning helps retailers understand what the appropriate inventory goals should be. What's more, it helps to optimize inventory assets. In fact, a study from IHL Group, commissioned by OrderDynamics, reports that retailers lost $1.75 trillion to overstocks and out-of-stocks in a single year. The study also included the following notes: Overstocks are responsible for 3.2 percent in lost revenue for the average retailer, and out-of-stocks, 4.1 percent
In North America, the loss from overstocks in the region is estimated to cost retailers $123.4 billion annually and out-of-stocks $129.5 billion although better forecasting tools have resulted in improvements to both metrics in recent years.
What Exactly is Demand Planning? Demand planning involves leveraging historical data and adding value using intelligence gathered internally to prepare a forecast by product category and often right down to the SKU level. Demand management is how best to respond to impactful deviations between actual sales and forecasted sales. Empowered with powerful computers and modern information technology, retailers have a much greater success meeting customer demand at the right time without over or under-investing in inventories. In other words, inventory assets are optimized to meet desired service levels. In today’s omnichannel retail world, demand planning becomes even more significant by ensuring not only the right products, at the right time, but also making sure inventory is available at the right channel. For instance, you know you need to increase the inventory of your Dancing Santa socks during the holiday season. But it is even better to know that your pop-up kiosk at the food court will sell twice the amount that the store, located a couple of blocks south, will. With demand planning, retailers can be confident they get a good return on investment on their biggest assets. Their inventory.
Demand Planning for Omnichannel Retailers Omnichannel retailing provides consumers with a seamless shopping experience. Shoppers can move freely across physical, online, telephone, and mobile technology environments to fulfill all their shopping needs. A key customer success factor for omnichannel retail is access to inventory across every channel. These include in-store, web, and mobile applications. This access across channels offers variables that present challenges to retailers. In order to ensure a unified experience for customers, retailers need to be able to strike the right balance between providing superior customer service while doing so at the lowest possible cost. One of the ways in which omnichannel retailers are finding this balance is by challenging the traditional ideas of what a distribution centre is. Ship from store helps omnichannel retailers to satisfy demand. But it also forces them to really question and examine every move their inventory makes.
How Can an OMS Help? "These problems are within retailers’ grasp to solve, but it requires more than data, more than business intelligence. It requires understanding the root causes of inventory and data disconnects and implementing the technology solutions and operational changes to address these revenue-limiting issues." Greg Buzek, President, IHL Demand planning and forecasting are not isolated practices. Achieving a single view of demand, inventory and supply is a significant challenge for retailers. After all, there is a number of moving parts that can all affect this. And all of them are moving at the same time. Just consider your stores, warehouses, returns, online sales and drop shipments, to name a few. Each of these affects and changes demand, inventory and supply. And not by the minute, but rather by the second. That single view is best achieved with an Order Management System. An OMS will increase efficiency, and improve the customer experience. Thereby satisfying the balance of omnichannel retailers who want to be able to do it all, in all places. With an OMS, you can take advantage of historical information, satisfy current needs and provide a forecast for the future based on reliable data. The success of demand planning relies on providing retailers with the most information possible. Together, an OMS and demand planning can provide the seamless experience customers want. As well as the improvements on operational cost-efficiencies that your business requires. Author: Marie Fournier was VP of Product Marketing at Tecsys. With over 30 years of experience in supply chain working with wholesale distributors and most recently also working with large hospital networks, Marie Fournier brings forth a wealth of practical knowledge in planning, order fulfillment and logistics.Back to List View