Demand Forecast Seasonal Index Disasters to Avoid
My recent Fox News interview highlighted my attention to an opportunity last Wednesday. What would sell Black Friday? What issues might derail the supply chain and how would that effect shoppers’ opinion and sales? It was 6:00 PM the Wednesday night before Thanksgiving, a major sales event for most restaurants. I took my family to a large restaurant chain where the tables were full and it appeared the restaurant had brought in extra people in expectation of holiday business. After being quickly seated, I ordered one of their key menu items: the Prime Rib. A few minutes later, our server returned and explained they had no more prime rib tonight. They were sold out as of 6:15 PM.
Impact of Lost Sales on Customer Perception
Everyone has had the experience of going to a retail location, excited at the opportunity to purchase something they had already picked out and expecting it to be available upon arrival. I would also expect that everyone has felt the great let down in learning that either the product might be available at other locations or that it would certainly be available at this location the next day. What went wrong at the restaurant? Like over 85% of all lost sales, the issue was in the supply chain at the corporate office, not the vendor. The vendor had product available to ship whenever an order (PO) was placed.
The Solution: Dynamic Seasonal Indexes
I asked a few more questions and learned that the seasonal index used was one week off and that the corporate cooking plans suggested fewer units were needed this week and more next week. Remember those ‘extra shopping days’ we hear NRF and others talking about this year? Those extra days meant the seasonal indexes created from last year and/or the previous year demand forecasted the rise in sales to occur next week. That meant the restaurant did not have the additional food available to sell. The result: lost sales, dissatisfied customers, and a sound landing in our blog as an example of what not to do.
Seasonal Front Loading
For some products, inventory can be front loaded without any problems, while other products have short shelf-life and cannot be heavily front loaded. Instead, time phased multiple orders would need to be placed. Systems that support holistic inventory optimization may not front load to the degree that some retailers manually do today as it adds needless additional carry costs and lowers profit earnings. However, for products that aren’t heavily front loaded, an error in a seasonal index can cost millions.
Common Seasonal Index Struggles
Christmas Holidays are not the only time of year that can be affected by fixed seasonal indices. Any moving holiday can play havoc with seasonal indexes. Legacy applications that do not provide a method to create manual seasonal indexes and/or tools to capture exceptions create needless expense and additional work for user groups. Consider the time-intensive work done every year to correct indices for holidays including Christmas, Passover, Easter, Memorial Day, Back-to-School, Labor Day, and Thanksgiving.
Effective Seasonal Index Strategy
Users of Data Profits iKIS can create effective and efficient seasonal index review processes. Our customers can set business rules that automatically catch exceptions, while legacy systems need manual intervention. Take time now to review your indices before the holidays impact you into a negative way. If you need help or would like to see an automated set of tools that allow you to create custom business rules to override the system in events like we have shared today, give us a call. Let’s set up a meeting or a demo. It’s time to ‘Tighten the Links in Your Chain™!’
Copyright © Data Profits, Inc. 2012 All Rights Reserved.
Stuart graduated from Auburn University, with bachelor of science in business administration.
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