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In today’s data-centric world retail environment has grown even more complex. With the influx of consumer data, businesses like retail need to have a better mechanism for demand forecasting in order to improve their customer service and stay ahead of the competitors. A good demand forecasting model enables businesses to smartly use their historical data on consumers and help them to plan strategies for future trends. Also, demand forecasting techniques help companies to anticipate when the demand will be high and establish a long-term model that can help in business growth. Retailers with the help of demand forecasting model can eliminate their dependency on instinct and intuition for decision-making. However, demand forecasting seems to be easy but in practice, retail businesses face critical challenges in building a demand forecasting model that can help them to deal with the ballooning complexities in the retail environment. In this article, our retail industry experts have listed out a few challenges that players in the retail industry are poised to witness in 2019.
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Demand Forecasting Challenges
Challenge #1: Using an integrated system to track customers and business
Over a period of time, most retail companies have built out their operations and have deployed systems as they need them. This often means retailers have one system for their enterprise resource planning and another for customer resource management. Though such systems have solved the incremental needs of retail companies, the ongoing digital transformations along with the need to maintain interoperability have proved to be a barrier in two ways for retailers. First, it is resulting in duplication of information in both systems that create a siloed approach and impacts efficiency. Second, with such a system it is difficult to gain actionable insights into unstructured data sets. Lack of unintegrated system makes it difficult for retailers to improve their business operations.
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Challenge #2: Applying the correct methodology for strategic decision-making
Retailers are making strategic decisions by setting goals for the company at large rather than for specific regions. Without a focused approach, retailers fail to gain visibility into where growth is expected. Also, such an approach does not help them to identify the regions that outperform in the competitive market and which ones underperformed against easy regional targets. Therefore, having a proper demand management process in place is important for retail businesses to get away with instinct based decision-making.
Challenge #3: Leveraging unstructured datasets to forecast the next step
Today players in the retail industry are struggling to leverage external data or customer profiles effectively. Customer profiles offer detailed insights into what customers want enabling companies to understand demand better. Also, by using external data businesses can improve their accuracy of forecasts by accounting for external forces that were overlooked previously. Building demand forecasting models can make it possible for retail companies to distinctly segment customers and analyze the demands and preferences of target customer segments.
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How can Quantzig help you take your demand forecasting to the next level?
Quantzig offers demand forecasting solutions that help businesses to create accurate demand capacity and plans. Our demand forecasting solutions and help companies to boost their forecast accuracy, improve service levels, manage portfolios, and maximize return on demand planning efforts. Quantzig, with its expertise in offering demand planning and forecasting solutions, empowers businesses to discover hidden performance drivers, increase profitability, improve collaboration, validate their business strategies, gain a 360-degree view of demand, and optimize ROI on operational spend.
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Demand and capacity planning forms an integral part of any manufacturing business irrespective of its size. Every manufacturing facility benefits from the logistical and financial potential of demand and capacity planning methods. This method includes the systematic use of resources through a proper estimate of production needs. Demand and capacity planning help manufacturing businesses to identify underutilized resources and opportunities. Also, demand and capacity planning enable businesses to manage demand based on business priorities and make smart and well-informed decisions. However, coordinating supply with current demand is a daunting task for manufacturing companies and is influenced by several factors. Here in this article, our team of experts has highlighted a few factors to help companies optimize their production schedule and supply process and excel in the competitive business sphere.
Automating demand and capacity planning can help companies share updates in real-time across the supply chain and improve demand management. Get in touch with our experts to know more.
Top factors influencing demand and capacity planning
#1: Identifying the bottleneck
For efficient demand and capacity planning, it is important for companies to identify bottlenecks. To do this manufacturing businesses need to estimate the overall capacity relative to overall demand along with the capacity of individual resources. Also, skilled workforce is required as it plays a pivotal role in the chain of production and supply. This can further help in improving demand and capacity planning.
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#2: The unpredictability of constraints
Demand and capacity planning can be obstructed by the constraints such as inaccurate demand forecast, limited supply of raw material, unrealistic sales goals, and the unavailability of required skills. Therefore, to yield the desired outcome, it is important that companies conduct a thorough analysis of dynamic demand patterns and have accurately predicted the constraints.
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#3: Maximize capacity to meet demands
Without proper capacity planning strategies in place, it is difficult for businesses to deal with the variability in demand. Therefore, it is important that capacity should be maximized by adopting measures such as bringing equipment online that is not normally in use, outsourcing work to other suppliers temporarily, or switching workforce from one production area to another. Also, businesses can conduct realistic data analysis utilizing advanced supply chain data analytics solutions to make smart capacity planning decisions.
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Today’s business environment is highly competitive due to which leading business players find it challenging to sustain profitability and constant growth. With the advancements in technology, life cycles of products and services have shortened, customer demands have aggravated, new competitors have emerged, and new business models have brought in major transformations. This has created constant instability in the market due to which it has become crucial for businesses to analyze the market demand. Wonder how demand analysis can help you tackle these challenges?
For a proper demand analysis, it is important for companies to understand their customers, the buying behaviors and most importantly the capabilities of the company to serve the demand. This understanding can further help in identifying customer needs and market opportunities. Additionally, demand analysis has the potential to help companies in uncovering brand value, supply chain capacity and deal with existing business regulations.
We, at Quantzig, understand the difference that demand analysis and demand management can create for any business. And to help businesses to stay ahead of the competitive curve, our team of experts has come up with a detailed guide on-demand analysis. Also, they have examined the objectives of demand analysis and how it can play a key role in improving the efficiency across the supply chain, business decisions, product pricing, product development, and planning.
To gain a competitive edge in today’s competitive marketplace, it is highly essential to adopt a data-driven approach and analyze market trends through demand forecasting and customer analysis. Wondering where to start? Get in touch with us right now.
What is Demand Analysis?
For any organization, demand is a crucial aspect that defines business success. Demand analysis is the process that helps companies to make better decisions regarding cost allocation, product development, product planning, and production capacity. Thus, the process of demand analysis is important for companies to understand the demand for their products or services in the market and maintain the inventory accordingly. Also, there is a possibility that sometimes production may exceed the demand and demand analysis helps to uncover such instances. Consequently, companies can adopt other ways to create new demand in the market.
What are the Objectives of Demand Analysis?
#1. Forecast market necessity
If you want to know about the kind of product or services needed in the market you are targeting, demand analysis is the approach to follow. With demand and supply analysis, companies can easily identify the products or services performing well in the market and driving maximum value beforehand. However, companies also need to analyze customer behavior and preferences before launching any new product or service.
#2. Sales forecast
Sales estimation forms an integral part of product development and planning. But to forecast sales, demand analysis and demand planning is the approach that helps. Companies can ensure their success if demand analysis of a product or service is done prior to its launch. Also, this can make it easier for companies to decide on the type and quantity of services or products to be launched.
#3. Determining price
Price is one of the main factors that affect demand. So, demand analysis is crucial for determining the price of a product or service. Different customers have different requirements. Some prefer luxurious products while others prefer only the products which are necessary. Therefore, it is important for any company to leverage demand and supply analysis prior to determining the price of a product or a service.
#4. Maximize profit
Companies before defining the profit margins for their products or services, need to analyze demand. This helps in ranking them in the order of priority and prevents the interference of government regulations. The categorization of goods and services can be efficiently by following the approach of demand analysis.
#5. Firm size determination
Demand forecasting and analysis help companies to select the right size of a firm for their business. Large size firms have different requirements than small size firms. The former is suitable if there are chances of the demand for a particular product to increase in the future while the small size firms are suitable if you are targeting a niche market. The size of the firm is directly proportional to the demands of the consumers. Therefore, demand analysis is extremely crucial for businesses to make decisions in such cases.
#6. Deciding the success and failure of businesses
Demand analysis is the direct method to analyze the success and failure of any business. Companies to succeed in the competitive marketplace, need to analyze their customers and forecast the customer demand in advance. If any business delivers exactly what is needed by the customers, it is highly likely that it will succeed while the companies that fail to do a proper demand analysis tend to taste the failure.
#7. Financial arrangements
Financial arrangement is important to run any business. So, demand analysis helps in deciding the financial arrangements according to the market demands and customer requirements. Also, this helps in ensuring the liquidity within the organization and facilitates a proper demand management process.
#8. Strategic planning of supply chain
To minimize costs associated with supply chain processes, it is essential that the business strategy synchronizes with a tactical supply chain plan. This can be done by following a proper demand analysis process. Consequently, the company’s profit can be increased, and the value of the shareholder will be enhanced.
Benefits of Demand Analysis
- Sales forecasting
- Demand manipulation
- Demand planning
- Product improvement
- Improve pricing policy
- Enhance market share
How can our analytics solutions help?
Global growth of organizations has resulted in complex business operations and reduced supply chain visibility. Consequently, organizations, in order to, overcome stressful global business environment and stay ahead of the curve, need to improve the efficiency of their operations across the supply chain. Our analytics solutions help organizations to deal with these challenges and offer them actionable insights into market trends through proper demand analysis, demand forecasting and demand planning model on real-time dashboards. Also, we offer our clients with the right frameworks to identify key performing metrics in the market which facilitates quicker decision making and better customer service.
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What is demand forecasting?
Organizations are likely to face several internal and external risks including high competition, failure of technology, labor unrest, inflation, recession, and change in government laws. The adverse effects of risk can be reduced by determining the future demand or sales prospects of their offerings. Demand forecasting is a technique used to estimate the probable demand in the future for a product or service. It can also be defined as a systematic process that involves anticipating the future demand for the product and services offered by a company under a set of uncontrollable and competitive forces.
Steps in demand forecasting
Prepare the data
The accuracy of forecasting largely depends on the data collected. Managers usually gather specific transactions that they must at a higher level to get a picture of meaningful sales activities and trends. In this process, they are required to create a number of dimensions for study. With the help of a data warehouse or database can support multiple types of aggregations and enable flexible analysis across dimensions instantly. In the case of demand forecasting, a higher level of aggregation means more accuracy in the forecast.
Measure data accuracy and coverage
Analyzing sales history is one of the most common and best methods that aid in demand forecasting. There are dozens of methods at disposal to analyze sales history, this includes the simple moving averages to advanced regression methods. They can be used to measure trends, seasonality, and cyclic characteristics of the company’s data. Prior to deciding on the ideal method, managers must establish whether the sales history is the same as demand for their product and services. They must also analyze stock out situations and accommodate this while predicting future demand.
Most businesses encounter stock out situations. However, in several cases, the demand is fulfilled through alternate channels such as an expedited order from a different geographic location. Though this results in customer delight, in the bigger picture this creates a chaos in the company’s demand forecasting efforts. This is because, during data collection, such exceptional cases cannot be easily tracked. Consider another situation where customer opts for a substitute product as their preferred product is out of stock. This distorts the demand estimate, potentially driving down inventory for the stockout product and driving up inventory for a substitute product. Though stock-outs can result in glitches in the demand forecasting process, this can be resolved to a large extent by correctly recording the place, time and item where the transaction actually occurred, along with availability.
Manage spikes in data
Occasional spikes often occur in the case of most businesses. While in some cases they reflect the real sales sometimes it could also be data errors. These spikes tend to pull the demand distribution in their direction, consequently skewing the inventory planning. To stay out of such situations, spikes should be researched separately in order to better understand what caused them and whether they are recurring or one-time events. It is ideally advised to avoid eliminate the spikes from demand forecasting estimates and replace the data points with a more typical observation such as the average volume for the previous and subsequent time periods.
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Ignorance is not bliss! Being unaware of parts, components, and products in transit within a supply chain can be devastating. Organizations should use supply chain visibility to improve and strengthen the supply chain by making the necessary data available to all stakeholders and customers. Supply chain visibility also promotes quick response to sudden changes by allowing the privileged users to take corrective actions and reshape demand or redirect supply. Providing an accurate and real-time picture of supplier inventory levels and demand signals, helps the company to meet compliance goals. Although the need for supply chain visibility has been established, few companies still struggle to properly implement it. Here are some supply chain visibility tips to help you optimize your supply chain:
Reduce stocking point
Having multiple stocking points within the distribution channel can diminish supply chain visibility. What happens is instead of having a look at one figure for one SKU, companies with multiple stocking points suffer from multiple data of the same SKU. A quick fix to tackle such a problem would be to reduce stocking points and avoid information overload.
Outsourcing and global sourcing is a common modern business practice. However, as the number of members in the supply chain increase, so does the time taken for information to flow from one end to the other. As a result, it hampers supply chain visibility. Companies can use intermediaries such as trading companies, 4PL providers, and international procurement office to shorten the pipeline. Supplier rationalization can help in reducing the supply base and contribute towards increasing visibility.
Find the bottlenecks
Why is it not possible to see anything and everything that is happening in the supply chain? It is because bottlenecks exist in the certain process, which can result in quality issues or high downtime. Finding the bottlenecks in the production facilities can save you time and resources.
A bullwhip effect is the most challenging phenomena to deal with in a supply chain. Small changes in the inception of a supply chain can create huge gaps at the end. Order batching or excessive promotions at the end of the quarter can create a ‘peak and valley’ demand pattern that is arduous for supply chain managers to handle. In such a case, using annual contracts or blanket orders will help manage demand with much flexibility.
Avoid safety lead times
In a classic material planning setting, safety lead times are often used to compensate variability in lead-time. For every step of the order cycle, extra lead time is added. For instance, for safety purpose, companies usually add 2-3 days of possible delay time in customs clearance. It creates conflicts in the lead-time information system and supply chain managers cannot claim an accurate lead time with certainty.
Apart from these tips, companies should invest in the multi-skilled workforce and empower employees to make decisions by simplifying rules and business processes. Investing in agility can greatly contribute towards supply chain visibility.
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Players in the retail industry are often posed with tough questions like how much of a 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 is what affects 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 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.
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.
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 detailed analysis which 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 more accurate results.
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Predicting the future seems like an effort in vain. The predictions rarely turn out to be true due to some unforeseen circumstances or changes in the external environment. The same can be said for demand forecasting in the retail industry as well. However, retailers still carry out demand forecasting as it is essential for production planning, inventory management, and assessing future capacity requirements. Accurate demand forecasting provides businesses with valuable information about their potential in the current market to make informed decisions on pricing, market potential, and business growth strategies. The retail industry simply can’t survive without demand forecasting as they risk making poor decisions about their products and inventory, which might result in lost opportunities. So what trends are catching up in the retail industry with regards to demand forecasting?
Rising popularity of bottom-up forecasting
Today, the retail industry operates over multiple channels, which demands inventory positioning in numerous locations. As a result, retailers have to focus on bottom-up forecasting to meet the demand through various channels. Using such approach helps them fulfill orders from both e-commerce and traditional retail channels for a wide array of assortments. It enables the retailers to meet customer demand more quickly and deliver goods through the customers’ choice of channel. When the need arises, such approach can also allow retailers to balance inventory between stores and distribution centers through high-frequency inter-depot transfers.
Focus on forecast quality
Retailers usually look at demand signals when carrying out demand forecasting. However, retailers with less sophisticated planning capabilities often seek consistency in demand signals, which is often fragmented. As a result, they look for a unified model that allows all stakeholders to collaborate via “what-if” simulations. Consequently, retailers are looking to measure forecast quality by looking at external collaborations, including suppliers and end users to get better forecasts, which can then be shared with the sales team and suppliers.
Fresh view towards long-tail items
A majority of the long-tailed or slow-moving items sell because they are in inventory not because the forecast team made correct predictions. The key to master demand forecasting for slow-moving items is to ensure service levels for them. Such items cannot be planned reliably, so the retailers turn towards supply chain planning software to automatically model stock-to-service level, which accurately lists how much stock they need.
At a time when automation is gaining popularity, retailers are quick to put the burden of forecasting on automation. Since the retail industry operates on a very tight margin, they will possibly look to save on the cost of hiring planners as well. Automated demand planning applications can forecast future demand and add value to the business flawlessly. Additionally, retailers are turning towards cloud-based applications for their automation needs, which allows them to perform sophisticated forecasting without having to invest in IT infrastructure.
Returns are considered the dark side of e-commerce. Retailers incur significant reverse logistics cost and other additional products costs due to returns. Retailers are using sophisticated applications to help them predict returns and minimize them wherever possible. This helps them to reposition the returned goods across their inventory.
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The client: Consumer packed goods manufacturer
Area of engagement: Supply planning
Typically, the global consumer packed goods (CPG) industry consists of establishments involved in selling toiletries and cosmetics, appliances, and food and beverage. The global CPG industry acts as a foundation for the contemporary consumer economy as it not only drives enormous amounts of money into other businesses like advertising and retail but also generates an immense portion of the gross domestic profits (GDP) for nations across the globe. Lately, the CPG industry has started witnessing a move from offline to online channels to gain a stronger footing in the market despite slowing GDP growth and weakening currency values. Moreover, CPG industry players are thinking beyond the conventional shopping to create and enhance shopping customer experience owing to the recent digital advances.
However, several factors are expected to hamper the growth of the CPG industry. These factors include:
- Fluctuating consumer demands: CPG industry players need to be more dynamic, and consumer-focused as the consumer needs and demands are fluctuating. Additionally, over the past few years, consumer preferences have transformed and moved toward more sustainable options. As a result, the success and profitability of CPG industry firms are dependent on how they cater to the changing needs of consumers and reduce the risks.
- Decreasing operating margins: CPG industry firms need to take into consideration the volatilities in the pricing of oils and their outcome on transportation costs. This is because there is an upsurge in need to supply high-quality products while be being cost-effective.
Many such factors are compelling firms in the CPG industry space to leverage the use of supply planning solutions. Supply planning solutions help firms in identifying the type of raw materials, goods, and the quantity to be procured. Additionally, these solutions help firms in restructuring and augmenting supply chain management activities.
The Business Challenge
The client, a leading player in the CPG industry space, wanted to predict and estimate the demand for FMCG products accurately and match the requirements of consumers. The client also wanted to ensure that the goods are produced at the right time and delivered seamlessly to avoid inconsistencies and errors in the supply. With the help of supply planning solutions, the client also wanted to seek ways to formulate reliable market forecasts and enhance the customer service levels.
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The Solution and the Business Impact
Quantzig’s supply planning engagement helped the CPG industry client to take into consideration the seasonality, tendencies, and the cost of production to decrease stock-outs. Additionally, the engagement helped the client predict customer demand patterns and accordingly meet the production requirements.
Supply Planning Solutions Predictive Insights
With the help of Quantzig’s supply planning solutions, companies can increase forecast accuracies and enhance version management capabilities. Additionally, firms can develop a robust inventory replenishment plan to offer consistent, reliable customer service; thereby, drive significant improvements in the supply chain performance.
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The client: Medical devices manufacturer
Area of engagement: Demand and supply planning
In the current healthcare environment, delivering value to the patients becomes a major concern for the organizations. The medical devices industry is shifting from an input-based approach to a value-based approach to improve the health outcomes and meet the growing demand for promising healthcare solutions. Despite the political uncertainties, companies in the medical devices industry are restructuring their health policies and initiatives to create a better value proposition by offering innovative products and solutions. The growth of the medical devices industry can be attributed to factors such as aging population, the proliferation of chronic diseases, and increasing emphasis on care and treatment.
Although the relative entry of global players is promoting the growth of the medical devices space, additional factors that are promising the growth of the industry over the years include:
- Ensuring product quality: Since the medical devices space is witnessing relentless competition, leading manufacturers must offer top-notch quality devices to avoid product recalls. For a medical device manufacturer, a product recall can negatively impact the brand’s reputation and the company’s overall ROI. It becomes essential for the organizations to ensure safety, security, and reliability to retain their position in the marketplace.
- Localization of medical devices: In the emerging economies, local medical devices manufacturers are more successful as compared to the international counterparts. So, leading organizations should indulge in effective market research to identify the potential gaps to meet the business requirements of the local populace.
To overcome the burgeoning cost of product development and efficiently bridge the demand-supply gap, prominent organizations are leveraging demand and supply planning solutions. Demand and supply planning helps businesses forecast the demand and accordingly align their inventory levels to enhance profitability.
The Business Challenge
The client, a renowned medical devices manufacturer, wanted to understand the historical sales data and determine the best possible ways to fulfill the requirements of the target audience. The medical devices manufacturer wanted to balance the supply and demand to improve their finance and service objectives. With the help of Quantzig’s demand and supply planning solution, the client wanted to adapt to the increasing demand volatility and address issues pertaining to operational inefficiencies and missed opportunities.
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The Solution Benefit and the Business Impact
The demand and supply planning solution offered by Quantzig helped the medical devices manufacturer re-align their supply chain and fulfill the demand of the end-user segments. The analysts also sought ways for the client to predict the future demand patterns and respond more nimbly to the changing customer needs. The demand and supply planning solution also assisted the medical devices client to develop higher values for both companies and customers.
The Demand and Supply Planning Solution Predictive Insights
The demand and supply planning solution offered by Quantzig helped the medical devices manufacturer efficiently sense and respond to the current market demand. The medical devices manufacturer was also able to serve each customer better and improve customer relationships. The client was also able to adopt technological solutions to improve their operational efficiency.