Better Demand Forecasting Means Less Stock-outs and More Satisfied Customers
Every retailer knows that being able to accurately forecast demand for products is a key capability if they want to optimize inventory levels, reduce costs and, equally importantly, keep customers satisfied by ensuring the products they want to buy are available.
In the omnichannel era, customers are less tolerant of stock-outs when shopping in stores. If they cannot find an item while shopping at their local store, they are most likely to simply whip out their phone and order the item from Amazon if the store doesn’t have the item or doesn’t have in the right size or color.
According to analyst firm IHL Group, upwards of 24% of Amazon’s retail sales in the US can be attributed to customers who first tried to buy the product in a local store but found it out of stock.
Stock-outs hurt retailers twice over. First, there is the financial impact of the lost sale. Take the example of a toy retailer that does not have enough stock of a popular new toy, which has been heavily advertised in the run up to the peak end-of-year holiday period.
Few customers are prepared to wait for new stock to arrive because they need it for the holiday. They will go elsewhere and so the retailer loses sales during its all-important peak trading period. For a toy retailer, the holiday season can represent as much as 30% of annual sales .
Lost sales means lost customers
As well as the one-off financial impact caused by the lost sale, there is a more serious effect that is often overlooked, namely the customer is far less likely to consider the retailer again when shopping for that item.
Its not just at peak holiday periods like Christmas or Black Friday that forecasts can go badly wrong. Omnichannel retailing has brought a lot more complexity to retail operations because inventory may been to be fulfilled from a location other than where the demand originated from, and demand is a lot less predictable. According to a report by RSR Research, unpredictable demand was the most common business challenge facing retailers looking to do omnichannel fulfilment well.
Demand forecasting is the starting point for a lot of processes that collectively make retailers function.
So, if a retailer can estimate with greater accuracy, what the demand will be for its products, it will be easier to forecast sales and costs.
But according to a survey by EIQ Research Solutions, just six in ten retailers in the US consider the technology enabling their supply chain forecasts to be good or very good.
Lack of forecast accuracy is a frequent complaint, cited by 34% of those who took part in the survey, but the challenges caused by unforeseen market risks and poor real-time inventory visibility are seen as bigger headaches, mentioned by 40% and 43% of respondents, respectively.
Being able to better forecast demand reduces the risks for a retailer and helps it make decisions on what products to stock and what quantities with greater confidence, so reducing stock-outs and over-stocks. According to RSR Research:
“Retailers MUST improve their forecast engines to bring the cycle of over- and under-stocks under control.”
The demand forecasting and inventory planning capabilities of Openbravo Commerce Cloud are designed to help retailers implement an effective and systematic forecasting process that is aligned with the needs of omnichannel retailers and can provide the foundation of cost-effective supply chain planning.
Want to see demand forecasting in action? Replay our webinar Demand Forecasting and Inventory Planning in Omnichannel Retail: Are You Ready for the Challenge?