It was the year 1983 when forecasters in personal computer industry in the US were predicting that the demand for PCs will continue to rise as there were only 8 million PCs installed for 50 million white-collar workers. However, according to a report in Harvard Business Review, a company managed to carry out a detailed demand forecast that revealed that the growth would soon flatten out. Its forecast said that more than 2/3rd of these workers did not require computers and the potential market was not big enough to support the growth rate. So, while the other companies were increasing their inventory, this company just wanted to wait and watch. And, as predicted by them, the market for PCs began to flatten the next year. So, while other companies were struggling with unused inventory, this company saved a lot of money by accurate predictions. This is the power of demand forecasting.
What is demand forecasting?While demand determines a consumer’s willingness to buy a specific product at a specific price, forecasting means the use of data to predict future sales or a company’s performance. While demand is a well-known concept of economics, forecasting is a statistical process. Hence, demand forecasting means predicting accurately when consumers are willing to buy specific products at a specific price and time. This helps retailers to anticipate demand for their product or services in the future and prepare for it.
How does demand forecasting help retailers?
Getting a peek into the future demands can help retailers run their businesses more efficiently. Demand forecast in retail helps retailers to understand when the peak sale season will be and also help them to stock their inventories. as well as, increase warehouse workers to manage that inventory. Demand forecasting avoids stockout of goods and thus saves your loyal customers from disappointment. It also helps you spend wisely on inventory that will be useful and will be sold, thus cutting cost.
Some other benefits of demand forecasting are-:
Demand forecast techniques retailers should follow :
Despite using the best of methods and strategies, you cannot always predict the future accurately. But, considering internal factors such as historical sales number, traffic on the website or store and marketing activities with some external factors such as industry trends, the weather, and what your competition has to offer, can help you a long way. Some of the most popular demand forecasting techniques are:
Qualitative forecasting : This is a process of anticipating demand on the basis of qualitative data. It is more out of intuition, retailer’s experience, and expert opinion than on the basis of hard facts. This method is helpful for new product launches, especially when there is no similar product in the market or in case of limited historical data. It gathers data from market research, surveys, expert opinion, or competitive analysis.
Time series analysis : As its name suggests, this is a quantitative approach that uses numerical inputs and trends to predict demand. Hence, by analysing previous values, retailers can predict future values. Indicator approach, trend analysis, life cycle modelling, seasonal adjustment, and econometric modeling are some of the approaches. Retailers that have access to large data can use this model.
Causal model : When a retailer takes both controllable and uncontrollable factors into account, it is known as the casual model of demand forecasting. It is a mix of both qualitative and time series methods, and involves intuition, as well as, data.
Now that we have understood that demand forecasting is a science that takes into account several factors such as data, intuition, controllable and uncontrollable factors, as well as, competition analysis, it is advisable to invest in the perfect inventory management software that enables a comprehensive look at your business by integrating all your data with accounts and POS.
Tips for accurate demand forecasting :
1) Set up a baseline for data : Start with setting up a baseline for data that will help you to make informed and accurate forecasting predictions and decisions. Also, make sure that you have set your objectives right in the beginning. This involves choosing the time period, the product or service for which you are conducting the forecast and the target audience.
2) Understand your customer : The second step is to try to understand your customer, his shopping behaviour, his preference, and spending tendency to help you forecast demand better. This data can easily be gathered through your Point-Of-Sale (POS) terminal. Also, study the trends of the local market as that will help you understand your local customers and their shopping behaviour.
3) Evaluate your KPIs : Evaluate your performance against the baseline by setting up a few key metrics. Some most commonly used KPIs are Gross Margin Return on Investment, sell-through rate of goods, stock-turn formula and lost sales. By evaluating your performance, you will be able to enhance your forecasting techniques and achieve better results.
4) Have a contingency plan : This year the pandemic taught us to be resilient, strong, and agile. You might have the perfect forecast for the year, but a pandemic, a natural calamity or some other product launch could derail all your efforts. Hence, always be prepared for external factors with a full-proof contingency plan.
5) Leverage technology to increase precision : With such advanced technology accessible to all of us, it is essential to leverage it to gain precise and accurate data. While technology helps you to centralise your data and make it accessible for all your employees to access, analyse and make decisions, automation will eliminate human error. Retail automation will send you regular updates about your inventory, what products are selling and what not, and will also update you about products that are about to sell.
Now with these many benefits attached with demand forecasting, it is time to invest wisely in a smart cloud POS that will help you in demand forecast and generate insights to increase your revenue and profits. Contact Intellect Commerce to see how our advanced demand forecasting system can take your retail business to new heights.
For more expertise, please request for a free demo of the iRetail software from our retail specialists: https://www.intellectcommerce.com/contactus/request-demo.html
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