How is omnichannel complicating demand planning?
Demand planning “has become an enigma” for supply chain professionals, according to the sixth annual “State of the Retail Supply Chain” from the Retail Industry Leaders Association (RILA) and Auburn University’s Center for Supply Chain Innovation.
Broadly, the challenges include an ever-increasing number of SKUs, tremendous price pressures, demanding customers willing to switch loyalties in a moment, and a multitude of order fulfillment options.
In interviews, 24 senior executives from a wide range of top retailers stressed the need to better predict demand quantities and the origin of demand (region, store, and channel).
Seasonal variation has also emerged as a more challenging planning issue. With demand fluctuating between channels during peak holiday seasons, retailers find it harder to predict where to position inventory. Amazon Prime Day in July and other major promotional events also present new challenges.
The reduced planning horizon that comes with omnichannel retailing is leaving little time for retailers to adjust demand forecasts. Wrote the study’s authors, “To counter this pressure, demand planners are now being asked to provide forecasts with greater detail. As a result, identifying an appropriate level of demand aggregation is another primary planning challenge.”
Finally, the use of multiple shipping points, which now more commonly include stores, adds difficulties when retailers attempt to manage inventory levels and accuracy.
One result is that only 31 percent of respondents to an accompanying survey of 74 supply chain executives considered their e-commerce forecasting capabilities “excellent.” Sixty-one percent agreed that e-commerce “greatly complicates” demand planning activities. By comparison, 63 percent believed their organization does an “excellent job” forecasting in-store demand.
Retailers are addressing some of these issues by improving alignment between different functional units, greater “analyst finesse,” and taking a channel agnostic approach to inventory. The author’s wrote, “They must couple these plans with innovative store replenishment and delivery processes to respond to changing demand dynamics in this complex planning environment.”
- 6th annual State of the Retail Supply Chain Report released by RILA and Auburn University – Retail Industry Leaders Association (press release)
- The State Of The Retail Supply Chain – Retail Industry Leaders Association (report)
How is omnichannel and e-commerce complicating the demand planning process for retailers? Do you see any solutions to improve forecasting needed for e-commerce demand?