The Little 2013 Holiday Demand Forecasting Mistake that Cost Thousands

Holiday sales kicked off to the slowest start since 2008 according to many reports. The lack of sales and margin is highlighting the bigger issue facing retail/ wholesale companies: old supply chain technologies and processes that no longer fit the customer demand buying patterns. The result of poor supply chain software and process is excess inventory. Your inventory has financial carrying cost and operational cost that together devour your company’s profits. Your excess inventory will lead to markdowns that lower gross margin and further decay your company’s profits. Maybe you are making the same little mistake that has driven others out of business…

The Truth about Demand Driven Retail that No one Told You.

Often, retail/wholesale companies fail from a lack of good cash flow and profitability, the results from bad inventory decisions. This is sad when you consider technologies exist that use readily available data to create accurate demand forecast to guide companies to successful year end sales and inventory positions. However, an accurate demand forecast isn’t enough. Today, a business needs good supply chain processes and replenishment tools to manage the flow of product from one end of the supply chain all the way to the consumer. Why after several years of similar events are retail and wholesale companies failing to change technologies and process? The truth is many are still not running a Demand Driven Model.

You still are not Demand Driven

The most viewed Demand Forecasting and Inventory Replenishment Article this Year supports exactly what we said in our holiday sales story last year. We predicted last year that retail/ wholesale companies would continue to explore how to become demand driven. The most downloaded article by supply chain executives in 2013 is about being Demand Driven. What does the word ‘Demand’ really mean and why it matters. Differences between Demand Forecasting and Sales Forecasting for Inventory Replenishment (Click to Read)

Prediction #1 Holiday Sales will only Rise 1-2% this year.

We wrote a blog this summer: ‘You Can Laugh At Holiday Sales Worries–If You Follow This Simple Plan’ (Click to Read) Often companies want to talk with us about the differences between seasonal and market trends, so they can place inventory better. With 50% of an assortment including slow and intermittent demand product, the forecast accuracy problems grow. A lack of good seasonal index technology using real demand forecasting analysis means many businesses miss events like the odd shaped bi-modal sales curve being tossed out this year. The event this year will not happen again for over 100 years, but there are similar events during other holidays due to occur soon!

Accurate Demand Forecast methods (not sales forecasting methods) using newer technology can identify and react to both seasonal and market trend indexes; identifying if the sales demand is seasonal or a market reaction.

Prediction #2 Retailers will Realize the Difference between Sales Forecasting and Demand Forecasting for Replenishment

Many software packages use the name ‘Demand’ Forecasting or ‘Demand’ Planning in the title and tout the amazing forecasting algorithms used by their product. Stop and think about it, you expect the algorithms to be the same for sales forecasting and demand forecasting – because they are the same.

The difference between demand forecasting and sales forecasting is:

1. Demand Forecasting will forecast demand by sales type.

Regular Sales
Lost Sales
Promotional Sales
Event Sales
Close-Out Sales

2. Sales Forecasting will forecast the total sales (all types).

All Types of Sales Aggregated Together into One Number

Does your software calculate lost sales and use the lost sales when updating the forecast? If not, then it isn’t demand forecasting. Can you see and edit each of the demand types in your ‘demand forecasting’ software, again if you answer no, then it isn’t demand forecasting software. Ask your software provider if their forecasting is demand forecasting, 90 % will say yes and proceed to explain all the forecast algorithms they use to calculate a forecast, It’s smoke and mirrors. Bet your sales rep doesn’t even know there is a difference? Click to Read More & See Examples You can use: The 5 types of Demand Sales for Forecasting Accurately

Prediction #3 Retailers using End to End Supply Chain solutions that are Demand Driven will Beat Competitors

End to End Inventory solutions with collaboration and user interaction are becoming available and provide new, unheard of opportunities. Supply Chain Visibility has become a buzz term by software companies to sell reports you already own. What is needed are solutions that allow users to see and react in one space in real time to any part of their network at any echelon, any sales vertical. What we hear often from retailers and wholesalers is a goal to have the Supply side and the Demand side of the business interact in a dynamic process, letting the user know only where they need to personally review. They are amazed to learn software exists today that understands the supplier, DC and store at deep information levels and can interact to move products through the supply chain to avert problems.

Prediction Wrapup

DataProfits’ three predictions this year highlight:

#1 Sales growth of 1-2% for Holiday Sales

#2 Importance of knowing the Differences between Demand Forecasting and Sales Forecasting

#3 Retailers using End to End Supply Chain solutions that are Demand Driven will Beat Competition

The Big Mistake

The ‘little’ Holiday Mistake of 2013 is many business are still not Demand Driven. Sadly, some have implemented software and updates with the goal to be demand driven only to learn the software and/ or process changes didn’t happen. If you are demand driven, your inventory is not in excess and you are not struggling with markdowns and out of stocks at the level your competition is facing. Demand Driven continues to be your biggest opportunity.

Are your ready to ‘Tighten the Links in Your Supply Chain?™’

Do your inventory management and optimization systems give you the tools to excel in the New Year? Is it time for you to ‘Tighten the Links in Your Chain™? Request a Demo and see how things can start to improve in your Inventory Replenishment Processes and Inventory turns with our 30 day install and 90 day ROI.

About
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Stuart D

Stuart Dunkin is a strategic visionary who leads by calling on his broad range of experience as a former retail executive as well as a consultant for top retailers and for the E3/JDA software company. He founded Data Profits to solve a real-world problem plaguing retailers today – the disjointed relationship between supply chain data, people and business goals. He has experienced first-hand the challenges and frustrations that occur when decisions are made based on wrong data, which often leads to the wrong actions being taken with crippling results like overstock, out-of-stock, and increased working capital.
Stuart graduated from Auburn University, with bachelor of science in business administration.