Connections
Solutions Corner
On demand
Gauging consumer need optimizes the supply chain.
by Pat McDaid, Aaron Raines and Greg Moore
Economic uncertainty has greatly challenged both consumers and the companies that serve them to reassess their use of resources. Consumers have re-evaluated their budgets and buying habits, and they have made some significant changes. Many are cutting back on luxury items, buying less expensive alternatives, delaying purchases—or halting certain purchases altogether.
This correction, in turn, is forcing businesses to make tough decisions to remain profitable. The ability to predict and service changing consumer demand patterns, and use that information to more effectively support the demand chain, will significantly affect the corporate bottom line and customer satisfaction.
Drive the supply network
Successful companies are now expanding their focus from the supply side to include the impact of consumer demand. This critical data signal is the key to recognizing downstream changes and more accurately predicting demand by store and stock-keeping unit (SKU). Improving these predictions allows organizations to increase customer service levels and sales while reducing inventory waste.
The “bottom up, location level” changes in consumer buying behavior can be identified and adjusted for, allowing the business to evolve into a “pull, buy what you sell” model rather than a “push, sell what you buy” model, improving inventory productivity and corporate profitability.
Traditionally, companies have focused on the supply chain, with a variety of historical data feeds like shipments, withdrawals or aggregated sales to optimize procurement decisions and the movement of goods from suppliers to customers. This tactic has driven impressive financial results on the supply side, optimizing costs from the supplier to the distribution centers.
Unfortunately, the absence of a consumer demand signal in the process can result in sub-optimal customer service levels, excess inventory, markdowns and carrying costs at the market or store level. One common issue for many retailers is stock-out rates, which are now under even greater pressure. Typical out-of-stock rates of up to 10% often double for promoted items. Addressing stock-outs is particularly critical given that most customers will simply go to a competitor’s store or Web site to buy these items.
In many cases, small, incremental improvements or declines can make the difference between significant profits or losses. Making the decision to acquire, retain and invest in the use of a consumer demand signal will reward and help grow the business.
Demand chain solutions
To effectively address these issues requires a solution architected to handle extreme scale and support a bottom-up process to develop demand forecasts of each item, by location, weekly and daily. These solutions must employ historical demand, possess great depth in seasonal and causal identification, and respond automatically to the latest trends to deliver accurate and responsive forecasts.
These forecasts can then be combined with inventory and replenishment strategies, serving to pull inventory through the supply chain based on expected sales across each location in the network. This is in stark contrast to older supply chain approaches reliant on shipment or withdrawal data to fill warehouses or to push products to the marketplace in anticipation of store-order requests.
Businesses employing a demand-driven approach have seen tremendous benefits in out-of-stock reductions, inventory turns and personnel productivity. Achieving these improvements, while optimizing customer service levels, delivers increased cash flow, profits and long-term business benefit.
Supply success
Many retailers and consumer goods manufacturers are searching for ways to retain market share and increase customer service levels. To do these simultaneously, they need to balance inventory investments with customer demand. Attaining these goals can be very challenging with the changing business climate, new personnel or expense reductions.
In many cases, small, incremental improvements or declines can make the difference between significant profits or losses. Making the decision to acquire, retain and invest in the use of a consumer demand signal will reward and help grow the business. Combining accurate demand forecasts with comprehensive replenishment and multi-echelon demand planning solutions greatly improves the ability of the business to have the right item in the right place, at the right time and in the right quantity to keep customers satisfied.
Pat McDaid is a senior business solutions consultant at Teradata and an experienced retail executive.
Aaron Raines is the global program director for the Teradata Demand Chain Management solution.
Greg Moore is the sales director for the Teradata Demand and Supply Chain Center of Expertise.
Photo illustration by Randall Nelson