Inventory Management : Grab the Bull by Both Horns
Forecast Internet and catalog sales with equal confidence
March 2009 By Ray Goodman
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For direct merchandisers, the Internet brings opportunities for additional sales and another touchpoint to build relationships with customers. As Internet-based sales have risen to 50 percent of total sales or more for many companies, they’ve also introduced new challenges to demand forecasting and inventory management. Many traditional catalog merchants feel less in control of their inventory planning than in the past.
In many cases, demand forecasting and inventory management processes haven’t kept pace with ever-changing Internet marketing. Lower productivity is often the result, as more time is spent reconfirming marketing plans and checking and rechecking forecasts and purchases. More fundamentally, lost sales, back orders and overstocks increase because inaccurate or late forecasts result in purchasing the wrong inventory and late deliveries.
For many direct merchandisers, success lies in their ability to adapt demand forecasting and inventory management processes that handle both catalog and Internet business with equal confidence. The two most common approaches are offer-based forecasting and statistical weekly forecasting.
Offer-Based Forecasting
On the surface, it seems that forecasting for catalog and the Internet are incompatible. Traditional catalog merchandisers operate from predictable sales patterns generated through catalog-based forecasting methods (offer-based forecasting).
For example, the impact of releasing millions of catalogs on a single mail date creates a reliable sales trend. The use of space and position in the catalog allows the demand planner to adjust forecasts accordingly. The print production cycle also allows for a longer planning horizon. As a result, merchandisers drive their own trends by drop dates, layouts and promotions they determine.
Even outside factors, such as holidays and seasonal sales patterns, are predictable to catalogers. While there are still significant challenges for accurate item forecasting, the inherent catalog production process and planning cycle allows inventory planners to anticipate demand and manage inventory to meet that demand. It also instills a greater sense of control.
Statistical Weekly Forecasting
Internet sales planning has two fundamental differences from catalog. One, the annual sales trends are more consistent over time, as there aren’t single mailing dates where millions of catalogs are released. Two, the planning time horizon is much shorter because product changes can be made in a matter of hours. This requires an approach to demand forecasting that’s better suited to evaluating the factors that drive sales on the Web site using statistical weekly forecasting.
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