Optimize Retail Demand Forecasting with Centric Software AI Technology

Demand forecasting is the process of predicting what customers’ appetite is and will be for products and what adjustments to make in your product offer to be aligned with their future buying behavior. It is a complex and critical process and needs to take external variables into consideration including season, weather, world events, trends and competitors.

How does demand forecasting impact the retail industry?

As the cost of producing products continues to climb, pressure mounts on every SKU to perform. Incorrect demand forecasting and forecast errors cause costly ripple effects that eat into profits. Demand forecast accuracy is crucial in aligning your supply with customer demand and greatly impacts several aspects of business including:

Revenue

• Inventory is the most significant business investment and forecast errors can lead to expensive consequences. To achieve a high gross margin return on investment (GMROI), retailers must focus on mastering forecast accuracy to maximize revenue.

Excess Inventory

• Demand forecasting gone wrong can lead to unwanted inventory, which ends up as deadstock and generates carrying and storage costs, tying up precious cash flow.

Excessive Discounting

• Incorrect demand forecasting often leads to heavy discounting and blanket markdown strategies to clear shelves. Excessive discounting also results in diminished margins.

Brand Reputation

• Excessive discounting can result in reputational damage as customers quickly identify brands that consistently lower prices. This can result in a diminished perceived value and impact purchasing habits as customers simply wait for items to go on sale.

1. Managing large volumes of complex data

Forecast accuracy depends on enormous volumes of complex data, including historical sales data, inventory levels, store performance metrics and market trends. This data can be difficult to manage and analyze with traditional tools such as spreadsheets.

2. Identifying unique customer demand patterns

Each store location has unique customer demand pattern and forecast accuracy relies on a deep understanding of local market conditions, customer preferences and the competitive landscape.

3. Managing inventory levels

Maintaining optimal inventory levels with the risk of overstocking or stockouts requires spot-on forecast accuracy and the agility to respond to changes in demand or market conditions.

4. Optimizing replenishment processes

Careful monitoring of inventory levels and lead times is crucial to optimize stock availability and cross functional teams need to work closely and respond rapidly.

5. Managing communication and collaboration

Effective communication and collaboration between demand planners, suppliers, store managers and merchandise teams are essential for retail demand forecasting and business success.

Centric Software® offers AI demand planning software solutions that enable teams to move on from manual demand forecasting methods. With Centric Planning™ and Centric Pricing & Inventory™ teams have access to more precise and future-focused analysis that utilizes AI and machine learning for informed data-driven decisions and retail business success.