Sharing the crystal ball

While for many retailers "forecasting" is more about gut feel and guesstimates there have been some notable exceptions: Entertainments UK, for example implemented a TXT solution that allowed it to forecast likely sales of new CD and DVD titles within hours of release.

TXT's first customers were in the fashion sector and it has become adept at helping companies predict sales of new lines based on historical performance: if you sell x in the first few hours then likely total market might be Nx during the life of the product, and so on.

Forecasting sales of staple or repeatable lines is rather different and this is where "flowcasting" has its supporters. This starts with forecasts for every product in each store rather than working on an RDC or national level. Once the store has made its sales forecast this can be correlated with existing stocks and required deliveries, which in turn are extrapolated to RDC requirements, over the time period under review, and ultimately to manufacturing production forecasts. Exponents claim that flowcasting can reduce out-of-stocks to just one to two per cent – compared with the more usual eight per cent-plus while total supply chain inventory can be cut by 30 per cent or more.

Reluctance to implement flowcasting techniques may, in part, be due to the fact that it requires significant collaboration between retailers and suppliers – and not many trading partners are, as yet, quite so eager to work that closely. Collaboration on forecasts involves trust and mutual confidence so neither partner is tempted to add in a little extra "safety stock" at each stage. Equally, flowcasting depends on long-term commitment with forecasts as much as a year out and good supply chain visibility to track products at every possible location from manufacturing plant to shelf.

Flowcasting depends on long-term commitment with forecasts as much as a year out.Such long-term planning is clearly less easy during a downturn as it is difficult to predict just where consumer cutbacks will fall: equally, collaboration becomes even more important at such times. Those with memories of previous recessions will recall that retailers – especially the largest and most powerful – can be quite ruthless when it comes to cancelling orders and pressurising suppliers on price to maintain their own performance. In the days when there was a large and competitive supplier base to choose from they could probably get away with such behaviour.

In today's global marketplace it is rather different – especially with those BRIC economies showing rather better growth opportunities than poor old Europe. If retailers want to keep their suppliers on-side then perhaps time spent on some collaborative and realistic demand forecasting sooner, rather than later when those orders need to be cancelled, might just prove to be a good investment.

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