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Top Trends: Demand Forecasting in the Retail Industry

May 3, 2018

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 an approach helps them fulfill orders from both e-commerce and traditional retail channels for a wide array of assortments. It enables retailers to meet customer demand more quickly and deliver goods through the customers’ choice of channel. When the need arises, such an approach can also allow retailers to balance inventory between stores and distribution centers through high-frequency inter-depot transfers.

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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.


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Forecasting Automation

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.

Managing Returns

Returns are considered the dark side of e-commerce. Retailers incur significant reverse logistics costs and other additional product 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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