Retailers Are Trying to Fix Their Supply-Chain Forecasts

Macy’s has been upgrading its forecasting abilities over the past several years with new technology. PHOTO: YOUNG KWAK/ASSOCIATED PRESS

New technology, analytical tools and shared data with suppliers are aimed at making merchants more agile in how they handle inventories

Retailers are turning to new technology and greater use of data across their supply chains in an effort to fix forecasting tools that were effectively splintered during the Covid-19 pandemic.

The efforts are aimed at closing gaps that emerged over the past three years as merchants veered between product shortages and overstuffed inventories in rapidly changing consumer markets. Now, even with those strains largely receding, companies are looking for better ways to manage the flow of goods on the fly and make sure they have merchandise where it needs to be to boost sales and maintain margins. Retailers “recognize that that’s the nature of the world going forward, complexity and volatility are here to stay,” said Chakri Gottemukkala, chief executive of supply-chain software provider o9 Solutions. “So the awareness of what it takes to really manage it and be good at it has gone up.”

Department store chain Macy’s and shoe seller Dr. Martens are among the companies that have been bringing in new technology to ensure they have the right goods in the right place at the right time. Macy’s has been upgrading its forecasting abilities over the past several years with new technology. The company says its use of data to drive decisions has increased its visibility into consumer spending habits and its flexibility to be able to respond to changes quickly.

The effort helped Macy’s minimize its excess inventory last year when a shift in consumer demand toward items such as workwear rather than leisure apparel left many of its competitors overstocked, a spokesperson said.

Dr. Martens, the London-based shoe retailer known for its thick-soled black leather boots, is implementing a new demand and supply forecasting system this year.

Chief Executive Kenny Wilson said on an earnings call June 1 that Dr. Martens is rolling out a new order-management system focused on improving its capabilities to sell both online and in stores as well as a customer-data platform to give the company better insight into consumer spending.

“We need to make incremental investment in our business to enable us to grow from a £1 billion [$1.3 billion] brand to our new mission of a £2 billion brand and to enable that increased resilience in our business,” Wilson said.

Consumer demand has shifted suddenly several times over the past three years, from the rush into online shopping in 2020 as lockdowns spread around the world to the sudden dropoff in retail trade in 2022 as restrictions lifted and spending moved from goods to services such as travel.

Shoe retailer Dr. Martens is implementing a new demand and supply forecasting system this year. PHOTO: JASON CAIRNDUFF/REUTERS

Supply-chain experts say the abrupt turns in demand, along with manufacturing and shipping disruptions, highlighted the need for forecasting to be more nimble than in the past, when projections were built on relatively predictable patterns of seasonality along with attention to broad economic drivers.

“What the pandemic taught you is you have to move faster,” said Kristin Howell, global vice president of the retail industry business unit at software giant SAP. “Your data snapshot is only as good [as it is] at the point of time you take it, and as soon as you take that snapshot, it’s changed.”

Howell said retailers are finding “the name of the game is really agility, and agility for a retailer is speed, it’s flexible sourcing, it’s the ability to respond to a change in customer preferences or even a change in the competitive landscape.” The focus is triggering changes in supply-chain staffing as companies add greater technology and analytical tools. That requires more employees with data-science backgrounds to go beyond using past sales to predict future demand, experts said.

“Retailers are starting to say, hey, that algorithm that generates the forecast can really tell me a lot about consumer behavior,” Howell said. “It can tell me a lot about trends in my demand profiles that maybe I can’t see just in that single number by itself. So that’s really where a lot of our customers have moved is trying to almost open up or unlock that black box to say, hey, what else is in that algorithm?”

Companies are able to make these changes now that supply-chain issues have faded and they’ve worked through their excess inventory, experts said.

Retailers can now say, “I know a bit more with some stability on where the consumers are at, now I know the gaps in my processes that have been exposed because of this new way that the consumer’s going to shop, and now my suppliers are for the most part able to keep up with my demand,” said Brandon Pierre, vice president of customer success at supply-chain software company SPS Commerce.

Retailers also are increasing communication with their suppliers, going beyond the basics of placing orders by giving manufacturers a better view of projected demand as early as possible, industry experts said.

“That’s allowing their suppliers to look at actual consumption, and they’re able to change and pivot more quickly based on shifts in the marketplace,” said Rob Handfield, a supply-chain management professor at North Carolina State University.

The rapid growth of e-commerce during the pandemic added another complicating layer to forecasting efforts. Retailers now must go beyond analyzing basic demand, experts said, and project whether goods will sell in stores or online and figure out how sales forecasts may fit into a company’s fulfillment strategy.

“The volatility has gone up so much that traditional approaches for forecasting and trying to guess in that horizon are now fraught with danger” for retailers, said o9 Solutions’ Gottemukkala.

Source: WSJ