Demand sensing: The essential upgrade to demand planning
We’re barely out of the woods from the pandemic and we can already see our “new normal” isn’t so normal. COVID-19 has impacted the way we live, work and spend our cash. For retailers, the latter is what matters most: consumers are shifting what they are buying and where they are buying, at an unprecedented rate. So quick that it’s hard to keep up.
Demand variability has long been a key cost-driver for retail, but has now reached new heights. Heights current demand forecasting capabilities can’t quite reach. A complete picture of daily demand is essential for retailers to optimise profitability, and typically current forecasts fall short of providing a whole prediction. But this doesn’t require a complete overhaul of your existing forecasting technology. Many retailers just need an additional input of intelligence to enhance their forecasting to ensure each decision – across buying and merchandising, supply chain and operations – is optimal.
Enter: demand sensing.
What is demand sensing?
Demand sensing is a forecasting approach that produces precise, short-term forecasts of customer demand on a daily and potentially hourly basis. It leverages machine learning, automation and a wide range of data sources that factor in real-world events to pinpoint customer behaviour that matters to retailers’ bottom lines.
From daily POS and channel data, competitor promotions, macroeconomic data – and even the weather – demand sensing can achieve near real-time visibility of demand. This means that for the first time ever, retailers can more accurately determine where, when and what products consumers will buy.
Demand sensing does this by using a large volume of data to build a truer picture of demand:
Traditional forecasting relies on historic sales data. Problem is, customers don’t have self-repeating purchasing behaviour. And while digital retail happens in real-time, demand planning does not. Current demand forecasts are missing out on essential demand signals such as market conditions, local events and marketing campaigns. With demand sensing, you can generate forecasts that are based on a wealth of internal and external data, to build a more accurate picture of the customer browsing the shelves.
Demand sensing doesn’t replace traditional demand forecasting: it enhances it. When combined with a more accurate and manageable prediction of daily demand, forecast accuracy can improve by up to 40%. Moreover, retailers can harness daily demand insights for more long-term forecasting and planning such as ‘hero SKU’ attributes, initial buy and pricing strategies. By using predictive analytics to produce daily demand forecasts, demand sensing helps to reduce latency in supply chains as demand planners respond to what’s happening on shelves right now, rather than yesterday’s prediction. Demand sensing is the tool for today.
How will demand sensing transform the retail sector?
Forget store-perfect orders – it’s now customer-perfect orders
With more accurate demand forecasts, planners have a more granular understanding of what drives consumer demand. Using this, retailers can satisfy and shape demand for the future with profitable planograms and product range planning. This is especially important for seasonal and longtail SKUs: they can anticipate when and where SKUs will be affected – and by how much. Whether it’s down to the weather or a new social media trend, retailers can proactively stock and replenish products their consumers want, reducing both lost sales and product obsolescence.
Enhance the customer experience
By leveraging demand signals across all channels combined with your customer initiatives such as promotions, loyalty and personalisation, retailers can move their demand planning capabilities a significant step closer to the ultimate goal of customer-level predictions. With better on-shelf availability and optimised replenishment, they can see improved order-fill rates and create more streamlined customer experiences, both online and offline. This translates not only to higher levels of customer satisfaction, but the nurturing of loyal, repeat customers.
Optimise inventory levels and reduce safety stock
By reducing forecast errors, retailers can dynamically optimise inventory and reduce inventory depth – even for seasonal trends and products with shorter product life cycles. But most importantly, it restores retailers confidence in inventory planning and safety stock levels. They can ensure in-store shelf space and distribution centres are optimised with the right levels of stock and labour to fulfil demand, even across millions of SKUs.
Develop a more agile and sustainable supply chain
With transportation and freight costs at an all time high, greater visibility of demand allows retailers to anticipate and mitigate stock outs and overstocks. More accurate and automated decisions in scenario planning allows for more efficient inbound and outbound operations – leading to reduced variable costs and waste. With sustainability a key priority for retailers and their customers, demand sensing is a key capability for understanding and optimising the impact of unnecessary shipments, product waste and site level efficiency in daily operations.
Ultimately, demand sensing is solving some of the retail industry’s most pressing challenges from excess inventory, high transport costs to on-shelf availability. Consumer demand might be more volatile, but with demand sensing, consumers aren’t so unpredictable anymore.