Insight Series
Mar 19, 2010
Must Arrive By Dates — Demand Data Forecasting is the Key
Maintaining shelf space for your brand is getting more competitive than ever. Private label brands are taking up more shelf space. Retailers are simplifying shelf assortments with less SKUs. And even greater emphasis is being placed upon demand forecasting — retailers look to you for spot-on demand forecasting that ensures products are on the shelf when they should be and not gathering dust (and incurring costs) in inventory.
So it almost comes as no surprise that Wal-Mart —with a well-deserved reputation for innovative supply chain optimization efforts — has initiated a penalty for those suppliers who don't meet tight delivery deadlines. Wal-Mart is requesting that U.S. companies deliver within a four-day window leading up to its "must arrive by date" (MABD). Those suppliers who deliver less than 90 percent of their products within that deadline each month will be assessed a charge — 3% of the cost of goods sold. Suppliers certainly lose when their goods aren't on the shelf — that equates to lost sales. Now there's an added penalty — a fine imposed by the retailer.
While other retailers have similar MABD initiatives in place, Wal-Mart's sheer size places new emphasis on the importance of increasing the accuracy of your forecasting and being forward looking in your demand forecasting − that means taking a good look at current and historical demand data, not internal order data. If you aren't using POS data, you don't know how consumers are behaving at the shelf.
In a typical week, sales can be rather predictable. But promotions or changes in retail price can wreak havoc in anticipated sales. These changes have a definite impact on volume. The question is: how long before you realize you need to produce more or less and adjust your shipping schedule? You need to be proactive and fast.
If you're slow to react (and predict demand), you can't expect your supply chain to react any faster. Ideally, you want to examine historical sales, order and promotions data to forecast changes in production and supply. If you're facing a future price hike or running a promotion for a particular SKU, take a look at past examples of similar events in order to forecast how you need to adjust production and supply.
If your forward-looking forecasts are based upon historical data, that means you'll also have less to respond to on a weekly basis. While some Monday mornings may still require a bit quick thinking based on Sunday night's POS data download, you should still be ahead of the game if you've adjusted production and supply for promotions and price changes based on historical data. With those events accurately forecasted and accounted for, you will have more time to respond to the little surprises that may come up in the latest download of weekly POS data.
Ultimately if you don't have open communication established between your retail sales team and your supply team, your ability to forecast demand will be undermined by an inability to act. Be sure to keep the lines of communication open and share the data you have at hand — it'll keep you and your supply chain fleet of foot and fine-free.
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