How to reconcile your retail forecasts with your partners’ supply plans

Retail forecast monitoring in Alloy

For seasonal and event-based demand patterns

Whether you’re preparing for the holiday season, a big promotion or a weather-driven period of increased demand, you should engage and advise your retail partners on their supply plans for your products. Here are a few best practices:

• Start the dialogue early: When you’re preparing for a period of increased demand, there’s far less room for execution adjustments and the stakes for planning are extra high.The key here is beginning conversations while you’re still setting your demand plan. This will minimize the chances of under or over-producing relative to your partners’ orders. By doing this proactively, your partners will be more willing to waive OTIF fines if supply disruptions that are out of your control create shortages.
• Compare your partners’ supply plan against historicals and your own forecasts in aggregate: Start by identifying significant deviations from historical sales and/or your own forecast. There’s no point doing a more granular analysis if your high-level assumptions are misaligned. If they are, start the conversation there.
• Get granular using the 80/20 rule: This is where the money gets made and category leaders are crowned. Once you’ve resolved aggregate differences in your predictions, a targeted analysis of top SKU/door combinations can significantly boost your revenue. Dig into last years’ data and identify the top 20% of SKU/door combinations. Start by answering the following questions:
  • Which ones ran out of stock while demand was still spiking?
  • How much inventory did each store receive at the beginning of the season or event last year?
  • How many units of lost sales occurred during the period of OOS?

Add preloaded units to lost sales and you have the actual number of units that should have been sent to that location. Finally, how does that number compare to your retailers’ supply plan for that store this year? Have your retailers accounted for those out-of-stocks?

Ultimately, you’ll wind up with a list of SKU-store combinations and a list of granular supply plan adjustments. While this type of analysis is certainly a heavy lift, acting on it with your retailer will lead to increased sales that justify the time and effort involved. You can also reverse-engineer this same exercise with the bottom 20% of unproductive stores, helping you reduce capital costs at the same time.

For consistently replenished items

For fast-moving products with (relatively!) stable demand, maintaining alignment between your forecasts and your retailers’ supply plans is an ongoing battle.

• Establish a regular cadence for communication: Even if you’re not engaged in a formal collaborative planning, forecasting and replenishment relationship, it’s important to keep an open line of communication with your buyers and replenishment managers. The following types of ongoing analyses will help you guide your conversations.
• Set up version monitoring and alerting for changes to your partners’ supply plans: The algorithms that generate your partners’ supply plans are constantly evolving. We recommend setting up a system to capture each version as updates occur as well as setting alerts for more significant changes, maximizing the time you have to adjust to shifting order patterns.
• Consistently track your forecast against real-time POS actuals, your partners’ supply plans (including previous versions) and historical sales: If you can get these predictions and signals in the same dashboard, you’ll always be the first to know when reality is deviating from your plan, helping you make crucial decisions about production and allocation during the most uncertain times.
• Focus your efforts on the top 20% of SKU-store combinations: Deviations between consumer demand, your forecasts and your retailers’ supply plans are leading indicators of lost sales or unproductive inventory. When these deviations occur, it’s crucial to focus your attention on the SKUs and stores that matter the most — that’s where you’ll have the biggest impact.

Whether you’re engaged in a formal CPFR process or entering retail for the first time, you should never leave retail allocation and forecasting purely up to chance. To learn more about how to put these tactics into practice, get in touch with us today.