How Demand Planning and Forecasting Are imperative for Retailers

How Demand Planning and Forecasting Are imperative for Retailers


Market variations in demand might be detrimental to your company. A recent example is the Covid-19 outbreak, which has caused revenues to be volatile for businesses worldwide. Thus it is a must for you to plan your business operations well in advance to better manage sales as a business owner. Integrating demand planning and forecasting software into your business model is one of the effective ways to do this.  A good demand forecasting software anticipates future sales by utilizing all the variables that affect sales and income.

Demand forecasting drives all choices about business operations and is a critical component of the supply chain distribution process. Good demand planning and forecasting software should be used by businesses to make informed decisions about inventories. This ensures that customers can always get what they want when they want it. Additionally, it assists the company in lowering high overstocking costs and minimizing the loss of revenue brought on by out-of-stock merchandise.

Let’s examine demand planning and the advantages it offers businesses.

What Is Demand Planning and Forecasting?

Using past sales data and other pertinent variables, demand planning and forecasting is a technique for estimating future customer demand for a specific period. Effective demand forecasting gives firms crucial information about their potential in the current market for managers to make informed decisions about growth plans, pricing, and market potential. Businesses risk making bad decisions about how many products to stock and which markets to pursue without proper forecasting. Long-term effects on supply chain management, customer satisfaction, income, inventory holding costs, etc., may result from this.

How Demand Forecasting Helps Retailers?

Retailers typically need to buy their inventory months before their products begin to sell. Additionally, costs associated with inventory go much beyond what you owe your suppliers. Additionally, there are expenses related to maintaining distribution centers and delivering products to retailers.

Additionally, once your goods are in stores, it creates charges for carrying, shrink, and clearance pricing. Finally, inventory has a significant opportunity cost because it restricts cash flow and uses up shelf space for other potential goods.

Because of this, inventory-based measures like Gross Margin Return on Investment and In Stock Percentage dominate important performance indicators for the retail industry.

It is crucial for modern retailers to know how much of each SKU needs to be kept in stock in each shop and distribution facility.

Empty shelves, rainchecks, disgruntled customers, and lost revenue and profit are the results of underestimating demand.

Overestimating demand results in additional expenses. Too much inventory on hand reduces GMROI and holds up money that could be spent on better-selling products. Furthermore, extra inventory will necessitate pricey clearance reductions, which can completely destroy profit margins.

Therefore, the first stage in optimizing inventory investments is to precisely estimate consumer demand.

The majority of the business’ success indicators are driven by demand forecasting, which lowers inventory costs, boosts turnover, and enhances the customer experience. Demand forecasting can encourage the business to make decisions that are supported by greater data. Retailers can realign their selection, merchandising, and promotion methods to maximize revenue and profit with improved insights into true consumer demand.

Demand forecasting can help retailers in the following way:

 1. Have the right products in the inventory

Effective demand planning makes certain that you have the proper products available precisely when your consumers need them, but not in such a quantity that they spoil or become obsolete.

Without demand planning and forecasting, it’s simple to run out of supply (leaving unhappy customers with empty shopping carts) or overstock a product (wasting money on items you can’t sell).

By predicting demand, you may avoid having too much inventory that damages your cash flow and drives up storage costs, as well as preparing your supply chain and inventory for any anticipated peaks.

With the help of demand planning and forecasting software, retailers can receive recommendations on which products to restock based on their profitability and sales rate. They can also receive alerts whenever the inventory levels of a given product cross a predetermined threshold, allowing them to restock the item before it runs out of stock.

2. Assess the risk associated with launching new products

Some demand planning and forecasting techniques—those that take into account consumer and store associate feedback as well as market research—can identify demand for goods you do not yet carry.

A new product’s manufacturing, supply, storage, and marketing expenses must be taken into consideration. This could be a very risky bet. Utilizing the information you’ve gained through demand forecasting will help you reduce the risk associated with sourcing a product you’ve never sold before.

3. Make accurate staffing decisions

Everyone benefits when there are enough people on hand to assist customers as they shop. But mistakes in hiring can be expensive, just as misjudging product inventory.

When business is booming, if you don’t have enough personnel on hand, you’ll have to make your clients wait for service, which could ruin their shopping experience and make them go somewhere else.

Additionally, you’ll spend more on the payroll if you have too many staff when in-store foot traffic declines.

To arrange your staff schedule, think about using previous sales data through demand planning and forecasting software. Don’t be hesitant to make changes throughout the day and shorten shifts if you find that you have scheduled more personnel than is necessary.

4. Run better-performing marketing campaigns

Your marketing activities become more deliberate and economical when you understand customer demand.

For instance, you can run time-limited deals or ramp up your loyalty program to promote the business when you anticipate a decline in sales.

In order to take advantage of the increased demand prior to peak sales seasons, you can experiment with sponsored social media and Google ads or team up with regional influencers.

5. Budget accurately and maintain positive cash flow

Your budget and cash flow determine whether or not demand planning and forecasting is advantageous for you. Can you consistently make sure you have enough means to pay your fixed and variable costs, such as your cost of products sold, your lease on a commercial location, and your payroll?

Answering “yes” is more likely if you foresee changes in client demand and the associated costs (along with calculating your break-even point). In the end, you’ll get estimates of your sales and profit margin.

You may adjust your budget as necessary using data-backed sales estimates rather than going into panic mode when your revenue suddenly drops.

About Fountain9

Fountain9 assists companies in predicting demand precisely with their demand planning and forecasting software, Kronoscope, AI-powered software. The demand planning and forecasting program examines 9 distinct parameters, including internal and external trends affecting demand. This enables businesses to efficiently meet consumer demand and keep one step ahead of the competition by determining how many products they should make.

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