4 Ways Demand Forecasting Enhances Shareholder ValueWritten by Are Traasdahl on Sep 16, 2019, 8:40:47 AM
There’s no doubt about it: accurate demand forecasting is at the heart of profitable business performance. Forecasting informs the entire supply chain, driving allocation of resources and the ability to realize market opportunities while efficiently (and profitably) satisfying customers. Fast-moving consumer goods companies—especially those producing and delivering perishable foods—can create competitive advantage by excelling at demand forecasting. Achieving peak forecasting excellence has traditionally been easier said than done, given the need to capture and integrate all relevant demand signals and influences to arrive at a robust, “single-version-of-the-truth” forecast.
The good news, however, is that the ability to identify and capture those demand signals and influences is greater than ever before. Yet despite the availability of technological tools like artificial intelligence, advanced analytics, and cloud-based software solutions—all of which help businesses use data to efficiently find meaningful patterns—many companies continue to forecast by Excel spreadsheets alone, pulling in historic sales and shipment data, group knowledge, and company goals as inputs. If you consider the ripple effect that a demand forecast has on total company performance and profitability, the decision to take forecasting competencies to the next level becomes easy to make.
Here are four ways improved demand forecast accuracy has a positive impact on shareholder value:
How Demand Forecasting Accuracy Positively Impacts Shareholder Value
Increased Shopper Satisfaction
At the end of the day, retailers’ and suppliers’ main priority is to delight shoppers. Why? Because delighted shoppers are loyal shoppers, an increasingly important factor in today’s omni-channel world. If a shopper’s desired product is out of stock three times at the same retailer, they will switch stores…very possibly forever. Improved forecast accuracy down to the SKU and individual store levels make it possible to get the right products to the right store at the right time, maximizing remaining shelf life and preventing out-of-stocks.
Increased Customer Satisfaction & Preferred Supplier Status
Accurate forecasting allows for optimized distribution plans, increases speed to market, reduces producer and retailer warehouse inventory while increasing fill rate, and helps eliminate the costly “fire drills” and expedited deliveries associated with unanticipated out-of-stocks. With the growth of online shopping, it will become increasingly important to identify and separate each demand stream (e.g. brick and mortar, click-and-collect, home delivery) and forecast not just how much people buy, but from where. Retailers and syndicated data suppliers are currently scrambling to develop the capability to capture and report sales at this level of granularity, which can then be incorporated into best-in-class forecasting tools. Improved sales forecasts lead to improved, more consistent delivery of customer service basics (on-time, accurate orders of fresh, best quality product), which in turn allows the supplier-customer relationship to move from transactional to a consultative or enterprise partnership.
Moreover, retailers aren’t forecasting efficiently either: they frequently contend with legacy systems and multiple spreadsheets just like many suppliers. For that reason, improved accuracy can greatly increase retailer confidence in a supplier's ability to lead a collaborative vendor managed inventory process, which moves the relationship from reactive to proactive. It shifts the focus from “orders only” to a greater understanding of consumer behavior, increased coordination of promotional and merchandising events, and improved trade spending effectiveness.
Increased Bottom Line
Improved demand forecast accuracy improves bottom-line performance in three main ways: top line revenue growth, cost reduction, and productivity improvement.
Revenue growth is realized through the elimination of retail out-of-stocks (capturing previously missed sales opportunities) as well as the reduction of price mark-downs that can be necessary to move short-dated product. In addition, having fresher, higher-quality product in fully stocked displays accelerates growth by stimulating impulse purchases by new customers—and increasing purchase frequency among current customers.
Cost reduction occurs across the supply chain. Excess inventory—both of finished goods and raw materials—is eliminated, freeing up working capital. Shrink declines at the production source, at retail, and at home, and purchasing can be streamlined, which reduces the frequency and high cost of expedited orders. For fresh products, planting, harvesting, and sourcing plans can be more effectively aligned with actual demand. At a minimum, the result is an increase in the predictability of retailer purchase orders. Ultimately, forecasting accuracy provides the confidence needed to source ingredients and schedule production in anticipation of customer orders, thereby improving order fulfillment along with operating margin and GMROI (gross margin return on inventory).
Productivity gains are realized both in operations and in talent utilization when forecasting speed and accuracy is increased. Reducing or eliminating excess inventory frees up production capacity for other new product opportunities, and labor, line utilization, and production scheduling can be optimized. The inevitable human-error-driven mistakes associated with legacy spreadsheets, formula errors, and cut-and-paste can be eliminated as well, saving both time and money. Furthermore, consistently accurate forecasts allow time and talent to be redirected towards achievement of customer satisfaction and other strategic business objectives, including high value-add activities like problem avoidance, issue resolution, and optimization.
Reduced Food Waste
Every year, one-third of the world’s food production is wasted. At the same time, nearly 1 million people around the world are categorized as under-nourished. Feeding the growing global population with nutritious, sustainably produced food is one of the greatest challenges facing the world today. Boston Consulting Group has identified leveraging big data, digital tools, and collaboration for better demand forecasting as key initiatives that will cut food loss and waste. In addition, companies that effectively address societal challenges tend to be rewarded with higher margins, reduced cost, and new revenue opportunities through product innovation and/or market expansion. They also improve their ability to attract and retain talent, as corporate social responsibility programs are increasingly important to millennial and Gen Z professionals. 1 All these items enhance company value.
Given the sheer magnitude of what is required, accurate forecasting cannot reasonably and consistently be accomplished with Excel and the human eye alone. It takes artificial intelligence, machine learning, the latest in data science, and automation. Getting it right pays dividends in shopper and customer satisfaction, bottom line profit, and social impact. What’s more, implementation is not as costly, complex, or time-consuming as you may think! The Crisp demand forecasting technology leverages the latest in artificial intelligence, machine learning, and open source forecasting models to produce customized, best-fit demand forecasts for fresh, perishable, and packaged foods of all types. Getting started is easy: the Crisp cloud-based platform plugs seamlessly into existing ERP and IT systems. Output is fast, impact is high, and the decision is simple—book a demo or contact us to learn more about how Crisp consolidates every byte of your data for optimal forecasting and ideal production.
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1 Boston Consulting Group, “Tackling the 1.6 Billion-ton food Loss and Waste Crisis”, August 2018.