Tactics > merchandising
Forecasting
the future
oday’s shoppers have more planning, budgeting, and many other forward-
Business intelligence retail choices and more detailed looking activities.
product information than ever Until recently BI tools were used primarily
software and predictive
T
before. Any business that sells by power users and skilled systems analysts,
tangible goods must address a but today’s BI solutions deliver actionable
burgeoning online marketplace information to employees in a broad range
analytics are more while attending to other, traditional channels of departments. For example, merchandising
such as bricks-and-mortar stores, tracking personnel use BI to optimise the selection,
effective than a crystal
inventory, managing supply chains, and staying placement, and promotion of merchandise
on top of the latest buying trends so that they among sales channels and locations. Warehouse
can develop effective merchandising plans. managers use BI to help stores stock high-
ball when it comes to Business intelligence (BI) software can help selling items and determine how long it will
you overcome these challenges by synthesising take to replenish inventory. Executives use
demand forecasting
information and making strategic use of BI to monitor key performance indicators
corporate data. In conjunction with predictive such as return on invested capital, same-store
modelling capabilities, BI solutions can not only sales, margin, sell-through, turnover, customer
provide a clear picture of past occurrences but satisfaction, and shareholder value.
shed light on the future as well.
Leading retailers use BI to determine where Knowing the score
to place retail outlets, how many of each size Correctly forecasting sales—also known as
or colour of an item to put in each store, demand planning—is the holy grail of BI for
Knowing
how much square footage to allocate to each retailers. Forecasting is one of the trickiest
category, when and how much to discount slow- aspects of running a retail operation, and it’s
how many
moving inventory, and many other issues. They also one of the most important, since it affects
use predictive models to exploit patterns found so many facets of the business. When popular
transactions
in historical and transactional data so that they items are out of stock, a company loses money
can identify risks and opportunities, such as and annoys customers. Conversely, overstocking
how to forecast demand and which prospects to items raises inventory-carrying costs and puts
took place is
target with new marketing campaigns. an unnecessary strain on production and
As business management guru Peter distribution partners.
not the same as
Drucker famously said, what cannot be Before a business can make predictive
measured cannot be managed. In addition modelling applications available to
to what happened yesterday or last week, merchandisers, it needs to eliminate their
understanding
managers are anxious to know what will complexity—and given the multitude of
happen tomorrow. What will be the demand variables, parameters, and rules, modelling
why they took
for a new product or service? How much tools can be very complex indeed. You can
revenue can we expect from our various simplify them, however, by giving merchandisers
channels? Which customers will be interested and buyers intuitive scoring applications, which
place and how
in our new line? Retailers intent on answering allow them to generate predictions simply by
these questions are partially responsible for selecting parameters from a web form.
to use that
the increasing adoption of business analytics The accuracy of these predictions is based on
software. three variables:
information in
BI solutions work by consolidating
information from a variety of sources, including 1) the quantity of detailed historical data
point of sale, inventory, and customer available. Incorporating large amounts of
the future
relationship management (CRM) systems, historical data into the assessment process
then leveraging it to inform vital activities, increases the precision and accuracy of the
from inventory tracking and sales analysis to decision—or to put it in the most basic terms,
vendor performance monitoring and demand the more information you have about past
forecasting. Predictive analytics, also called purchases, the better you can determine
forecasting, is a branch of BI that provides the whether a person is likely to buy a specific
foundation for demand planning, inventory product in the future. Consider an electronics
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