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on November 8, 2021 by Rob Hahn in Fulfillment, Technology & Data

The Secret to Reliable Demand Forecasting Is Demand Planning

Image of scales balanced to represent good ecommerce demand planning

What will consumers buy today, tomorrow, next week, next month or next year? What platforms will they choose to buy those products from? Will you have enough to fulfill that changeable demand? Ecommerce demand planning and demand forecasting seek to answer these complex questions. It’s an extraordinarily difficult task in “normal” times and heading into 2022, planners will need to account for growing complexity and a host of unknowns. But poor planning can lead to big problems. Read on for the modern commerce guide to better demand forecasting (a.k.a., demand planning), common mistakes to avoid and actionable advice for the success (and survival) of your business.

What Is Demand Planning?

Demand planning is the ability to sell your products and services to meet consumer desire without running out of stock. While inventory management focuses on where your products are today, demand planning focuses on the future. Demand planning reveals if you have too much product, too little or just enough.

Demand planning is anything but simple and straightforward, however. It requires a complex command of and real-time transparency into several key data points:

  • What products are selling
  • What platforms are selling those products
  • How fast are those products selling
  • How much inventory do you have to cover that velocity
  • How long is the lead time to create and deliver more products
  • How much inventory do you have to cover that lead time

Demand planning reveals if you have too much product, too little or just enough.

If you’re banging your head against your desk, you’re not alone. Demand planning is hard. Demand planning for ecommerce is exponentially harder than physical retail too. Ecommerce was designed to move products quickly, and the more omnichannel your strategy, the greater the complexity of your demand planning. It’s a problem worth having for a growing brand or consumers will find what they need elsewhere.

What Is Demand Forecasting?

Demand planning and demand forecasting are inextricably linked. The work involved in demand planning enables you to forecast future sales. As we’ve said before, demand forecasting is “100% reliable for being wrong 99.9% of the time.” Does that mean demand planning is inherently flawed as well? Not necessarily.

Demand planning focuses on two critical elements: recency and velocity. As explained above, demand planning requires real-time data inputs such as what’s selling, how fast, where, etc. The output of those calculations enables a more reliable forecast for the future.

Where traditional demand forecasting gets tripped up is an overdependence on historical data.

Where traditional demand forecasting gets tripped up is an overdependence on historical data. Why? Because it’s easier to access historical data versus pulling data from various channels each day, let alone each hour. Reliable demand planning and demand forecasting require transparency (and easy access) into what’s happening now with your products so you can identify trends for the future. Done properly, demand planning and demand forecasting can help mitigate the risk of being out of stock or overstocked in the wrong places. By extension, demand planning and demand forecasting have a direct impact on your customer loyalty, satisfaction and happiness.

Avoid These Three Demand Planning Mistakes

People make mistakes. We’re generally bad at planning as a species, favoring short-term goals over long-term impact. Here are three common demand planning and demand forecasting mistakes to red flag in your own practice. Some require a mind shift to break with “it’s always been done this way.” The easy way may be comfortable and familiar, but in the case of demand planning and demand forecasting, it may be undermining your success.

  1. Image of excel file iconNo one truly excels with Excel. The world’s most powerful demand planning or forecasting tool is not Excel, despite popular belief and wide adoption. It’s time-consuming and manual, which means that process is prone to all kinds of human error. And critically, you can’t learn over time in Excel, nor can you intake data dynamically from multiple marketplaces in the program. How often you update your Excel tables is directly related to how recent (or accurate) your calculations are. Excel has very real limits, which can handicap your brand.
  2. Image of stacked boxes on the left and two small boxes on the right to represent good and bad demand planningWould you rather: under or over stocked? Being out of stock may be fodder for your nightmares — and for good reason. Your sales could spike thanks to news coverage or an influencer’s review or even a financial raise. Are you prepared? Although you can’t account for every extreme or outlier event, how you calculate your sales velocity can spotlight the potential for those out-of-stock days. If you’re low on stock and calculate the wrong velocity, you may find yourself in a vicious negative churn cycle. Over manufacturing is equally terrifying and crippling. The more inventory you have that doesn’t move, the more impact on your bottom line as warehousing will eat into profits. If you raise or lower prices to move that product during an off-peak time, will consumers still buy?
  3. Image of a head outline with cogs representing learning and thinkingLearn from but move past the past. What worked last year may not work this season. That’s especially true today with supply chain squeezes and consumers more closely managing their finances due to a global pandemic. Although useful, historical sales don’t account for seasonality, weather, growth and a host of other unknowns. Focus on the future. As we mentioned above, recency is clutch. Stay on top of your entire supply chain to understand the challenges outside of your brand. For example, if you manufacture your toys in China, how will a two-week shutdown due to COVID affect your supply? Do you have alternative plans in place? Do you have enough supply to wait out that delay?
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Demand Planning & Forecasting Require Attention & Action

Demand planning can truly make or break your demand forecasts  — and your business. It requires constant attention and action to support your sales funnel. This is one area of business where micromanaging is encouraged. With demand planning, the devil truly is in the details. Understand the intricacies and dependencies of your supply chain and communicate up, down and across to track lead times and delivery.

The more you know about your supply chain, the better you can (over)communicate with customers to manage expectations and keep them warm to your brand.

Although supply chain woes are a constant for now, take solace in the fact that no business is immune. Apple and Amazon missed earnings, citing “supply chain constraints.”

Multibillion-dollar global businesses with the deepest resources and influence are wrestling with demand and supply just like you. What you may lack in resources, however, ecommerce brands can make up for in agility and transparency. The more you know about your supply chain, the better you can (over)communicate with customers to manage expectations and keep them warm to your brand. Demand planning can fuel these outcomes and more.

Whitebox’s Modern Commerce Tools to Drive Success

How can you break old habits and get started on the right path? Whitebox’s dynamic demand planning tool can help. Unlike Excel or a siloed point solution, Whitebox delivers a holistic way to connect sales and inventory in one central, transparent place.

We provide insights you can action on, from what’s in stock and where, to how many days of cover you have based on our proprietary formula. Our tool offers a single point of calculation for brands’ omnichannel needs. Make critical supply decisions based on real time, machine-learning calculations and up-to-date inventory counts. Contact us to schedule a consultation today.

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