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Supply chain forecasting in an omni-channel era

When we talk about optimising the supply chain as part of an omni-channel strategy, it’s usually about the availability of products, regardless of the distribution channel. But this is just one factor among many that directly affects the consumer. Upstream, a variety of forecasting techniques can help ensure that the right products arrive at the right time to the right channel.

Forecasting trends in fashion and retail is a volatile business. For retailers to succeed, they have to be able to offer their products exactly when and where demand occurs, irrespective of the channel and the distribution network. In order to do this effectively, retailers have to forecast sales and launch new lines at the perfect time, so that there’s neither too much stock (leading to additional costs), nor too little (thus avoiding the risk of lost sales). Traditionally, for the wholesale channel, orders that occur six months before the start of the season are on average 70% of the total volume of wholesale demand, with the rest being made up by restocking during the season.

Forecasting demand and replenishment

Distribution strategies differ from one client to another and there are a number of factors to take into consideration for sales forecasting. Firstly, geographical location and seasonality play a big part – while you might be able to sell flip-flops all year in Singapore, it will be more difficult in New York in January. But climate change over recent years, including three consecutive mild winters in Western Europe, is also being felt on the high street, where too many winter jackets might mean retailers having to adjust their purchase orders more often.

Another factor to consider is cultural differences. We know that a product that appeals to the Asian market may not have the same success in South America. Sales history, coupled with a good knowledge of each market, can give invaluable insights into predicting trends and how best to plan supply and stock levels.

Prioritise, plan and satisfy demand

To launch a collection at the right time, some retailers might decide to exploit one channel over another. For example, some collections are only available online, while others might only be found in-store. But, on the whole, it’s not unusual for 90% of items to be common to all channels and only 10% to be specific to a particular channel.

But in a scenario where one particular channel is delivered before the others and the entire stock is sold out, replenishing it usually takes far too long. And taking away stock destined for another channel, or different area, is likely to diminish sales. The ideal solution is to forecast demand for every channel and location, looking at all available stock and the logistics set up. Every item should, in theory, be made available for whatever channel or geographical territory offering the best returns. At the start of the season, availability forecasts can help predict the best use of stock for any channel or location without cannibalising another. Then, based on actual sales, it should then be able to divert goods between channels to optimise availability and sales and limit overstocks towards the end of the season. All that’s needed is an IT system that’s capable of supporting this type of planning, and a modest amount of training for the teams using it.

What’s generally required among retailers is a system flexible enough to manage ongoing fluctuations in the market and yet sufficiently intuitive to make it easy to use by staff.

6 April 2015
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