Promotions are Huge, That Doesn’t Mean Inventory Should Be
You’re very familiar with the importance of promotions, how they can make or break sales figures for the quarter or even the year. But an extremely successful promotion brings to light a challenge: Inventory Replenishment. While we often think of general retail for sales events to model, it is the grocery industry and their weekly promotions that highlight the pain in the promotion link of a supply chain. Let’s take a look at the root of the problem, and how the challenge can be overcome with ingenuity and technology to give you an edge over your competition.
Promotions Only Work if you can Make the Sale
When you’re doing a promotion in your retail store, it’s not always about clearing out overstock. Sometimes getting a product that has modest sales to become a big money maker takes putting it on promotion to curve demand, guiding consumers to your store for the product. When that’s the case, being able to get restock to prolong the profit-making potential is paramount. If you don’t have the product in stock, you can’t make profit from the sale, and that’s a problem worth beating.
The challenge with promotion inventory replenishment isn’t a new one, therefore, the market is flooded with various individual’s ‘wisdom’ of how to solve it. The problem is, if you were to ask a group of people from different retail environments how to tackle the problem, it’s quite likely that all of them will give different answers. Google the term, and you’ll get thousands of suggestions, from simple methods like ‘order three times as much as you normally would, it works!’, to ‘eh, just let rain checks take care of it’. The problem with these scenarios is that they almost always fall apart.
More than 85% of the forecasting systems in use today are only using 2 forecast algorithms and a collection of ‘models’. Many software companies claim to have ‘hundreds’ of algorithms when in fact they have only one or two algorithms and several models. Legacy systems often don’t have algorithms for intermittent and slow demand product. If you want to get an optimized inventory you need accurate demand forecast. Accurate demand forecast can only be reached with updated, modern demand forecast solutions and fortunately they cost significantly less money.Learn more about slow and intermittent demand forecasting: Slow and Intermittent Product Demand Forecasting Facts and Myths
Setting a standard amount of ‘promotion inventory’ would only work if the number of units sold was uniform no matter the product, which of course isn’t the case. Rain checks, while certainly not something to be dismissed entirely, run a considerable risk of tarnishing brand image, as customers want the product immediately – not the hassle of having to remember a piece of paper and having to possibly go out of their way.
Simple, Effective Solution
With promotion marketing having the potential to make or break your year’s sales, having a product that can help you navigate the related inventory replenishment challenge is a must. By taking a look at sales figures based on normal price changes, past promotions, aggregate sales data, and numerous other variables, such software can fairly accurately predict how a promotion will affect inventory. With Data Profits’ inventory replenishment software, you can even automate the reorder process to further eliminate stress and uncertainty.
Promotional Forecasting is Not New – But Buyer Beware
Promotional forecasting is not new; the main algorithm needed is specific. It is complicated, but well known in academic circles. The problem has been the computer processing time needed and the type of redundant processing necessary to run this type of algorithm is expensive and takes a high degree of both academic and programming knowledge. Very fast hardware is also needed if you are going to manage millions and millions of sku/ locs. Unless your software is new, the reality is your inventory replenishment software is probably not delivering promotional forecasting.
The Lie – Many software companies provide promotion replenishment and call that promotional forecasting.
A Quick Promotional Forecasting Test
For a promotion, can you enter a set of dates and attributes and a collection of Sku/ Locations into your system which then delivers a demand forecast of the lift or decline?
Attributes might include:
- An end cap
- 15% discount
- Pictured in the ad
- First Week of the 11th Month for 7 days
This is not a question of how much to buy for replenishment; that step is later.
Step one is to accurately identify the future demand, then decide how to service the customers based on that knowledge.
While some software will tell you what to buy for the promotion, that’s buying and replenishment. The question to ask is does your system forecast the number of promotional units or does your software ask you to tell it the amount of units or percent rise or fall? Some other software makes a big deal out of tracking the attributes but doesn’t actually use the attributes to forecast promotions and events. Buyer Beware
Inventory Replenishment Software for Promotions
We understand the urgency to make promotions work and their importance on your overall sales figures. Therefore, we have designed a product that will tackle those problems to maximize profits, and make it a sales year to remember. To find out how our solution can help you propel your promotional sales to the top through efficient inventory replenishment, Contact Us.
Copyright © Data Profits, Inc. 2014 All Rights Reserved.
- Lead Time Forecasting - February 7, 2019
- Data Profits in Gartner’s 2017 Retail Replenishment and Forecasting Software Guide for the Sixth Year - February 13, 2018
- Data Profits Releases 4 Easy Replenishment Ideas that Adapt to the Digital Age - July 20, 2017