It's About The Order

Forecast, Schmorecast...Only thing that matters is the Order...

Recently, a retail VP of Ops told me off the record that, “…Until we get our store ordering right,no meaningful reductions in inventory or OOS are real or sustainable." Powerful stuff, no doubt, and yet, it seems to fly in the face of conventional wisdom -- that forecast accuracy is key.

While there is little doubt that you cannot get to good store ordering without accurate forecasts, it is alos true that the forecast is only part of the story when it comes to getting to the order. Simply put, you cannot have a good order without a good forecast, but you can get a bad order even with the great forecast on earth.

Why? Because forecasts are good for estimating the total sales for a product for a given time period, but they are not even designed to resolve that forecast into a good store order.

Forecasts are just what they are -- forecasts. They estimate total sales for a product for a given period of time. But orders, well they are a bit more complex. Orders begin with the forecast, but then work forward to derive an order. A good ordering system has to know the foreacst, but it also has to know:

• what is already on order
• what is already in the stores
• what is already being shipped

And, almost every Demand Forecasting system out there fails to go beyond the forecast to derive the order. Consequently, orders are typically out of line with consumer demand, placing too much product in the stores.

Then, there is automation. With more than 20,000 SKUs in your average grocery store, retailers can no longer rely on manual order writers to accurately gauge consumer demand and resolve that into individual orders -- There simply are not enough hours in the day for that.

Instead, they must rely on automation in order to keep up. Yet, the highest levels of automtion achieved by nearly every Demand Forecasting system is only around 50%, meaning that more than 10,000 skus have to be manually ordered in every store by manual order writers. This is unsustainable.

Only automation levels over 90% can keep the retailer on top of consumer demand, and there is only one company doing that today -- SAF. http://www.saf-ag.com/?L=1