Supply Chain Forecasting Challenges

In the current retail environment it is very difficult to forecast long term inventory and even product plans and this is especially difficult in the apparel and electronics markets.  This requires a change in strategy and execution for both the demand planning and forecasting practices and this will be a boat anchor for retailers until they change their strategy.  The changes in the retail marketplace driven by consumer shopping and purchasing practices is not going to stabilize and in fact, changes in demand and forecasting will only increase with these marketplace changes.  These changing consumer demands must be met with a forecasting and planning strategy and methodology change that will depend a great deal on expanded data collection and analysis along with expanded interaction and collaboration with consumers.

Many planning and forecasting strategies are focused obtaining the lowest cost for product purchasing which drives a methodology for planning a season and purchasing large quantities of products to support the majority of the season.  This causes peaks and valleys in purchasing and then in fulfillment to stores and eCommerce where the beginning of the season sees high volumes of receipts and then the remainder of the season the flow shifts to outbound shipping.  This planning and forecasting strategy has helped retailers to increase their profits and reduce their costs in the legacy marketplace.  This strategy has also created a high incident of highs and lows in inventory availability; the unplanned high volume demand causes lost sales at full purchase price, while the overstock causes sales at mark down price losses.  

My observations of retail and especially stores identified a large volume of mark-down overstock product in stores, so much so that in some stores I’ve seen between a quarter and half the floor space dedicated to overstock product mark-downs and in some store they have dedicated a large department in the store for overstock.  It seems like the retail marketplace is entering a new phase of off-price sales of product in order to address the overstock issue.  This cuts into the profit margin and then it can set off a series of reactions to lower prices earlier to reduce the volume of out of season markdowns.

Large retailers can learn from the fast fashion apparel marketplace and shorten their cycle of planning and forecasting.  This would require a redesign of the extended supply chain and supply chain partner agreements in order to change the planning and forecasting strategy however I do not think this is an insurmountable hurdle.  I think the greatest hurdle to changing demand planning and forecasting strategies and forecasting is the hesitancy to change by these large retailers.  The change would require re-thinking timelines, rethinking purchasing strategies and rethinking supplier partners in the extended supply chain and all of this means an increase in the continuous stream of effort required to support these new strategies, methods and partnership arrangements.

And now for the audience participation portion of the show…

ECommerce will have wide ranging impacts on both the retail and manufacturing sectors.  How can you focus these abilities to improve the consumer's experience?  Improving the consumer’s experience will require a re-evaluation of the sales channels, the manufacturing channels and practices and the supply chain channels and practices from the raw materials to the consumers’ homes.  In order to ensure and maintain success in this new reality you must harness the tools and capabilities in many new areas.  How can you support these continuously changing requirements?