Players in the retail industry are often posed with tough questions like how much of certain merchandise to stock, which brand will sell the most, what is going to be the busiest time of the year. Some things might be easier to predict while others are almost impossible. However, that doesn’t stop retailers from using demand forecasting as the go-to tool for inventory planning and merchandising. Retailers have been using demand forecasting for a long time to improve their business operations. Still, only a few retailers are capable of producing a good forecast; thereby, improving their inventory planning. Here are some insider tips to improve your forecasting:
Understand the Drivers
Many companies still assume that sales are what affect forecasting and thereby base all their forecasting on sales data. This is the most blindly followed statement in the retail industry as forecasts are actually driven by demand. The difference between sales and demand is minimal and you can run into trouble when you base your forecasting on sales. For instance, if you run out of a particular SKU for a few months there will be zero sales. The sales data will thus reflect that there is no demand for the item so it is worthless to buy it.
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Use Right Inventory Management System
Inventory management has a significant impact on the forecasting accuracy. It is essential to know what’s happening in the warehouse to facilitate accurate demand forecasting. Consequently, it is important to find the right software and hardware to facilitate inventory management system. Executives should ask the right questions prior to investing in an inventory management system to enable better forecasting.
Understand the Drivers of Uncertainty
A company’s ability to accurately forecast demand depends on numerous factors. Analyzing these factors in advance helps companies plan ahead and create an accurate demand forecasting strategy. Manufacturers should also ask questions regarding the consistency of the demand, factors influencing the variables, levels of supply chain visibility, modes of transport available, and access to multiple modes of transport. Figuring out such uncertainty refines your forecasting, which enables companies to have a backup plan in place.
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Measure and Report Forecast Accuracy
A forecast will rarely be successful in the long term if the progress is not measured and reported to all stakeholders. Standard reports often offer a detailed analysis that identifies strong and weak areas. One will only get to know the forecast accuracy when the forecast is compared to the actual result. Analyzing the variance will allow companies to identify what went wrong and thereby further tweak their forecast to get a more accurate result.