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Avoid These Time-Bombs In Forecasting and Replenishment

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Forecasting and Replenishment: a Time-Bomb Awaits.

Customer preferences have been changing; customers want personalization, on-demand product information like price deals, and exceptional customer service like 2 day delivery.  For companies to be successful in this marketplace, they must adapt the way they do business to accommodate such changes.  One aspect of a business, which directly relates to accommodating such change is forecasting and inventory replenishment. The real story is how market expectations have moved far beyond legacy inventory replenishment systems.
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Changes in Demand Forecasting and Inventory Replenishment Methods: Top 5 Blogs of 2013

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Demand Driven Inventory Management: Your Target in 2014

Demand Forecasting and Inventory Replenishment Methods were the top stories (blogs) downloaded and reviewed in 2013. Based on the number of readers and average time spent on a page (3min), these 5 stories stayed in front all year long. These stories are good indicators of where companies like yours see their opportunity to use better methodologies and new technology for higher supply chain profits in 2014.

Change is Good. Do You Know the Right Questions?

The marketplace changes faster today than anyone could have predicted 5 years ago. While many supply chain analysts have touted the need to be demand driven, the facts show that most retail, wholesale, and grocery businesses have done little to improve their processes. The good news is today hardware can run 3-5X faster than 5 years ago at 1/2 the cost. The bad news is that software systems cannot just be ‘upgraded’ to make use of the new hardware, forcing business to accept 3rd rate results or outlay large amounts of cash to write new software. Software companies have made it very difficult for buyers to understand what is old technology with a new wrapper and what is really new software technology. The following top stories of 2013 highlight the right questions to ask, why the questions are important and the answers you should expect.

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5 Scary Changes to Your Inventory Replenishment —Which Do You Make?

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You are scared of change, so are most people. It is a basic human emotion that we all fear change. When faced with the need for change, reality sets in and you’re reminded that the world changes constantly. A business that doesn’t change is doomed to fail. This sounds harsh but history teaches us that life is all about change. You either change, adapt (like a 1/2 change), or die. The irony in that statement is that often companies will change people but fail to change processes or systems, expecting things to improve. How long did your foot stay stuck in the mud? Until you pulled it out, you didn’t go get a different person’s leg. The same with supply chains, until business and people are willing to make changes, expect the same results.

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Why Your Inventory Replenishment Costs will Explode this Fall

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The speed of business operations today is outpacing the level of insight and the execution capabilities of legacy inventory replenishment software. In the new omni-channel marketplace, sales and market behavior can, as they used to say ‘change on a dime’, today we say ‘change on a tweet’. Companies are looking for different processes and new systems to increase their view of inventory replenishment activities and make better decisions to support their customer’s expectations, their market share, and profitability.
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YES, Weekly Replenishment CAUSES Out-of-Stocks and Lost Sales

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You believe a weekly replenishment process that includes reviewing plan, inventory, and sales to make purchase order decisions is profitable.  Some people think weekly replenishment increases turns for the business.  Your weekly review and reorder for inventory replenishment also suggests razor sharp exception management processes are in place, ready to act.  Weekly review and reorder means there is little chance for out-of-stocks or extraneous freight costs to occur. Historically, these ideas promote the belief that human review and intervention on a weekly basis is the correct and profitable course of action.

So, how is that weekly replenishment process working out for you?

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Differences in Inventory Replenishment Methodology: Facts and Myths

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The Inventory Replenishment Methodology a supply chain solution uses to flag when an inventory replenishment order should be placed is critical to consider when reviewing supply chain software. Review any of the mainstay inventory replenishment systems, and you see what becomes obvious – there are only two methodologies possible. The system signals an inventory replenishment order is needed based on a combination of date, plan, and demand (top down) or based on a combination of service goal, demand, and available inventory (bottom up). Everything after that flag is a mix of tools and features that differ in each software package. While these two inventory replenishment methodologies have similar features and names, the critical things for you to know are:

  • How to identify which methodology is used by your software (or software you are reviewing).
  • The costs and goals of each methodology and how the differences impact each line of business in your company.
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Critical Steps to Forecasting Replenishment for Demand Planning

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Forecasting replenishment correctly and following standardized inventory replenishment processes continues to deliver significant returns to retailers, wholesalers, and manufacturers. For the retailer/ wholesaler/ manufacturer ready to move away from legacy technologies, there are huge opportunities that cost 50-90% less than legacy systems. A forecast accuracy in the 90% range we know delivers a significant shareholder value increase of 15% or more.

Several documented events support these claims (click a link): a retailer achieved a 25% inventory reduction and a 3% same store sales increase in 90 days, the sales and inventory trend continued going forward (press release), Dr. Mentzer’s 3 page story concerning a collection of businesses that delivered an average 15% shareholder value increase via forecast accuracy improvements which directly impacted forecasting replenishment, and The Home Depot Chairman and CEO, Frank Blake, specifically stated in the 2011Q4 earnings briefing that supply chain investments continued to provide significant benefits including increased turns and same store sales.
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Why Sales Forecasting Systems are Wrong for Inventory Replenishment

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Sales Forecasting is the wrong tool for inventory replenishment and inventory planning. Sales Forecasting, by its very name itself, is a measure of total sales. In our last article, we discussed that the key difference between sales forecasting and demand forecasting is whether (or not) sales data is broken out into the type of sale, analyzed, and the results input into the forecasting algorithms. Sales type might include any or all of the following: regular, lost, promo, event, and closeout sales. Without the knowledge that sales went up or down due to market factors like out of stock and promotions, a sales forecasting system will forecast based only on the total sales. This may not be the intended goal for inventory replenishment or inventory management.

Key Limitations to Sales Forecasting

Sales Forecasting, by its very nature, doesn’t know why sales rise or fall and cannot connect events to sales behavior. For example, when sales were down 20% four weeks ago, you probably knew this was due to constrained supply which created out of stock issues. The sales forecasting system will react to the 20% drop by lowering the forecast. The resulting inventory replenishment orders from the new forecast will be low, creating a repeat scenario of lost sales again next month.
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Differences between Demand Forecasting and Sales Forecasting for Inventory Replenishment

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Demand Forecasting and Sales Forecasting are different, and the results of each can have a dramatic impact on your profitability. Demand Forecasting and Sales Forecasting should be calculated with some similar and some different data points. While closely related, the two resulting forecast numbers will not be the same in most business situations. The forecast results will impact the inventory replenishment by impacting available inventory, expected inventory orders, and sales. An inventory replenishment system that is based on a demand forecast (demand driven) can reduce the risk of lost sales while improving service. This in turn delivers higher sales by connecting inventory levels with demand forecast.

What is Sales Forecasting

Sales Forecasting is the easier of the two choices: you load your sales history into the sales forecast engine and the system delivers a sales forecast. Sales Forecasting is critical for the retail business to create financial plans with the banks, plan sales growth, and plan resource strategies. Sales Forecasting systems have a ‘vanilla’ approach that is clean and simple, and it works without issues for the most basic of products. Legacy systems often will pair the sales forecasting with their demand planning tools to determine inventory replenishment for the business. Read more

How Holiday Sales will Impact Retail in 2012

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Data Profits’ Predictions for 2012 that Retailers need to Know Now

The official holiday shopping and Christmas season kicks-off this weekend, and is considered a bellwether for the retail industry, as this is the time of year when retailers earn up to 40% of their annual profits. Everyone is watching to see:  will post-election results and the continuing shaky global economy drive shoppers back into their recessionary, frugal spending habits or will they be more willing to loosen purse strings?

Another major trend that industry insiders are speculating about is the influence of social media and ecommerce on this year’s holiday shopping season. Will consumers seek and find the best deals from their sofas by using their device of choice, avoiding the mob scenes at the Malls all together? With so many big questions looming, what can retailers do on the eve of the 2012 Holiday Shopping season that will make a strategic impact? Read more

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