How Merchandise Forecasting Can Reduce Back Orders

Aug 07, 2012 3:16 AM  By

Ever go to your closet at home looking for a shirt, only to realize you can’t find it because you took it to the dry cleaners two days ago?

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Well, if you get confused like that with the contents of your closet, it’s easy to see how you need help keeping track of thousands of SKUs in your warehouse. What’s on-hand/ available, what’s committed, what’s allocated to future shipments, what’s on order, what’s been returned/resellable, and so on?

Sure, your order management and fulfillment system should be able to take a snapshot of this data for yesterday and today, but what about tomorrow? How will the multiple multichannel promotions you have in place and have planned affect demand? How many SKUs will you need of which items two weeks from now, or a month out?

Here’s where merchandise forecasting can help you reduce back orders.

Merchandise Forecasting
Well, there’s an “app” for that, i.e., an application called “merchandise forecasting,” which is typically set up to serve one or more vertical markets, because the needs of a manufacturer or wholesaler differ significantly from a retailer, which in turn differ from those of ecommerce or catalog merchants.

Merchandise forecasting is a complex, mathematically-based process of “curve matching,” where you try to align the sales curve for each item in the current season with a curve from previous seasons that best matches demand by item as each week in the season ticks by. Since last season’s curves are already complete, you can “predict” where the current season’s curve is going.

Direct merchants need a system that can: Forecast demand by item, based on historical demand and promotions (current and planned); Suggest purchases (based on warehouse limitations, min/max quantities, vendor lead times, and historical activity); Reduce back orders (by producing accurate forecasts, of course!); Minimize overstocks; Maximize turns

Systems Options
There are four major systems for direct commerce merchandise forecasting:

Galvin (galvinassociates.com) – This system was first developed in the late 1980′s and has been used by some of the largest direct marketers in the business (including Cabela’s, Coldwater Creek, and J. Jill). Its options include marketing, merchandising, time-phased open-to-buy, item planning, material requirements planning, purchase order management, and item query/report writer.

IF/SO from ForeRunner Systems (forerunnersystems.com) maintains a balance between the business or circulation Plan and the merchandise Plan; rolls up all the individual item forecasts from multiple sources of demand and delivers a daily or weekly purchase requirement based on “least risk/best return” criteria; and allows for item-specific selling curves including adjustments for special occasion events, including Web events. Users include Williams-Sonoma, Restoration Hardware, and Frontgate.

Forecast*21 from Direct Tech (direct-tech.com) creates unit and dollar forecasts using top-down and bottom-up tools; allocates forecasts by style, color, and size to create SKU-level plans; applies weekly demand curves to establish weekly demand plans by SKU; and forecasts demand for kits, sets and manufactured items. Users include Gardener’s Supply, PetEdge, and Appleseeds.

Just Enough (justenough.com) is somewhat more retail-centric than the other three, and designed to work with Microsoft Dynamics/AX, Netsuite, and SAP Retail, with modules for operations planning, retail-level demand planning, and promotions planning and analysis. Users include Design Within Reach, B&H, and TJ Maxx.

Ernie Schell is director of Marketing Systems Analysis.