An article published in The Wall Street Journal – Retailers Are Trying to Fix Their Supply-Chain Forecasts – took a look at how businesses are focusing on analytics, technologies, and data to optimize inventory management.
“Retailers are turning to new technology and greater use of data across their supply chains… The efforts are aimed at closing gaps that emerged over the past three years as merchants veered between product shortages and overstuffed inventories in rapidly changing consumer markets. Now, even with those strains largely receding, companies are looking for better ways to manage the flow of goods on the fly and make sure they have merchandise where it needs to be to boost sales and maintain margins.”
The article shares examples from Macy’s and Dr. Martens as “companies that have been bringing in new technology to ensure they have the right goods in the right place at the right time.” Macy’s was able to get ahead of the consumer’s shift away from leisure wear and minimize excess inventory better than many competitors. Dr. Martens’ is counting on a new order-management system to boost both online and in-store sales by providing better visibility into their customer’s spending.
Supply chain experts say that the frequent and often dramatic demand swings “highlighted the need for forecasting to be more nimble than in the past, when projections were built on relatively predictable patterns of seasonality along with attention to broad economic drivers.”
“Retailers are starting to say, hey, that algorithm that generates the forecast can really tell me a lot about consumer behavior,” said Kristin Howell, global vice president of the retail industry business unit at software giant SAP. “It can tell me a lot about trends in my demand profiles that maybe I can’t see just in that single number by itself. So that’s really where a lot of our customers have moved is trying to almost open up or unlock that black box to say, hey, what else is in that algorithm?”
Planalytics’ integration partnership with SAP streamlines the process of incorporating Weather-Driven Demand (WDD) analytics into forecasting. The WDD metrics allow retailers to make important demand adjustments within their SAP solutions due to changes in the weather – the largest and most enduring external factor driving daily sales volatility – in order better align inventories with local demand. Better alignment improves the customer experience, increases sales by minimizing stockouts, and reduces overstocks and the associated costs.
The Weather-Driven Demand calculations also help “open up” some of the mystery in the algorithm by exposing exactly how much of the demand variance – for each specific product and location – can be attributed to the weather. A retailer that knows 70% of the incremental sales gain was due to favorable weather conditions now has an important piece of the puzzle in place when they go to analyze pricing, promotions, and other business variables.