Don’t Forecast Demand the Wrong Way

‘Gut instinct’ days are done

September 9, 2016, 02:38 pm By John Karolefski

Accurate demand forecasting is critical

Preventing out of stocks and competing effectively with other trade classes is more important than ever for traditional grocers. That is why demand forecasting is critical. But the days of relying on gut instinct are over. New technologies are needed to remain competitive.

When doing research for a feature story on this topic, I spoke with several experts in demand forecasting. They told me the mistakes that grocers make when deploying technology solutions for the first time, or when they are expanding their processes. Here are the key mistakes they listed:

• Ordering too little of a product to avoid spoilage or loss: This is especially true for products that are specifically marketed for a particular holiday like cranberry sauce for Thanksgiving. Abundance is key with these targeted holiday items. Grocers should go big, sell a lot and expect a certain amount of loss on post-holiday mark-downs and spoilage. Customers want to be prepared for holidays and they’ll come back for a good clearance sale.
   
• Underestimating the organizational change required: Fundamental to success of a major demand forecasting transformation is alignment across the various departments that will leverage the forecast.
   
• Making things more complicated than they have to be: Grocers need to build momentum by starting with a forecast for products that already are stable and sell at a high volume instead of taking on the most difficult forecasting areas first. Assess the analytical support before getting started on a forecasting project to make sure there is sufficient horsepower to tackle big areas like inventory, pricing and promotions. With forecasting, the scale of most projects is massive and will take time and resources to master.
   
• Treating demand forecasting as a separate process: With this outlook, organizations fail to recognize the full value of demand forecasting, which can enable e-commerce, category management, insight-driven retail, digital customer engagement, and vendor collaboration. A single common demand forecast is powerful and should be leveraged across the company for replenishment (both DC and store), inventory, store staff planning, assortment optimization, and pricing.
   
• Neglecting to work with CPG category captains: As grocer's build their digital and mobile strategy, most are missing the real key value of making this information actionable by working in tandem with CPG category captains to jointly leverage digital coupons through social media interaction and engagement for testing, and to drive exponentially higher conversion rates through a influence/define path to purchase. This concept is the missing link to improving forecast, perpetual inventory, trade promotions and dramatically improving ad conversions. It combines the richness of granular data based on unique user profile, geo-spatial information and the likelihood to buy all in real-time.
  “This type of out-of-the-box thinking will dramatically help improve forecasting, new product introductions and promotions,” said Ron Wilson, a partner at the Kurt Salmon consultancy.