Tools for Merchandise Forecasting
Supply Chain Perspective
Production Planning Requirements Plng. Demand Forecasting
Collaborative Planning, Forecasting & Replenishment (CPFR)
While you may participate in a CPFR effort, you also must track and forecast demand in a customer-facing way. Many forecasting tools are designed to do exactly that. Note, however, that the typical demand curve for retail, as shown in the chart “Demand by Channel” (right), is a sell-through model. Sales start off immediately upon introduction of the stock into the stores and continue (ideally) until the inventory is exhausted. A run-away bestseller may be restocked repeatedly, but the typical challenge is developing a mark-down plan that strategically lowers prices until the product sells out, while preserving as much margin as possible. Again, a whole category of price management software systems support that effort.
Challenges Unique to Direct Commerce
But the direct merchant faces an entirely different set of challenges. In the catalog world, demand typically rises from zero when the catalog is mailed and peaks in the first two or three weeks as customers get the book and respond to it. While 60 percent to 80 percent of total demand may be experienced in those initial weeks, there may be a bump at the end of the season (e.g., for the fourth-quarter holidays). And some products trail off more quickly than others. It’s also critical to factor in the number of resalable returns you’re likely to get during the season.
Since orders generally are fulfilled from one or two warehouses, and space there is at a premium, knowing which items to have in stock in what quantities, and which to reorder and which not to, comprise critical data useful to your bottom line. When you’re managing hundreds or even thousands of SKUs, each with different demand profiles or curves, you can see why a system is required.