Supply chain strategists, GRA , recognise that there are many worthwhile outcomes to taking on a bottom up retail demand planning strategy; however the attainment of these outcomes requires a solid implementation approach that delivers both an appropriate forecasting system and a well-designed business process tailored to the particular retail environment.
It is the characteristics typical to retail businesses that drive many of the forecasting system and process requirements. These characteristics include:
- high stock keeping unit (SKU) counts often with a long “tail” of products
- large numbers of stocking locations
- stock presentation requirements in stores
- the impact of “out of stocks” on sales history data
- frequent and numerous small volume transactions
- short product life cycles
- seasonal and / or erratic sales patterns; and
- significant and frequent promotional activity.
- use a sophisticated automated forecasting system requiring minimum user input to configure and maintain
- have the capacity to store, transfer and process large data volumes quickly
- enable significant amounts of “market intelligence” to be incorporated into plans e.g. promotional planning
- utilise a range of forecast algorithms suited to the wide variety of demand patterns experienced in retail
- incorporate an intelligent performance reporting framework, and
- support a “by exception” approach to demand planning management, particularly where there is a large the product range and number of stocking locations.
Store level retail demand planning processes should do a number of things. They should synchronise seamlessly with purchasing and replenishment activity, and have a traceable and auditable impact on these activities and associated inventory policies.
They should also be cognisant of the “80/20 rule” and focus activity on the highest value adding activities.
Forecast exception management techniques with a store level retail demand planning process should allow planners to target questionable forecasts and focus on high value / critical lines.
Store level retail demand planning processes should consider the suitability of aggregate level forecast management in circumstances of mass promotional activity and, if implemented, proportionately apply aggregate adjustments to the store level forecast.
They should also cover all the key retail demand planning activities, including:
- out of stock history adjustments
- promotional planning
- statistical forecast review
- new product introduction; and
- forecast accuracy reviews.
Listing the requirements for a retail demand planning system and process is one thing; finding a suitably equipped bottom up retail demand planning system and developing a process tailored to a retailer’s needs is a much greater challenge.
It is possible however, as a number of retailers using this approach demonstrate, and the potential rewards are significant.