Retail Demand Forecasting and Inventory Management Applications: A Tool, Not a 'Solution'

Over 20 years ago, when I started my career as atools, not “solutions” as they are frequently
retail buyer, the industry was just beginning tobilled.
transition from manual merchandise control systemsAs these applications grow ever more sophisticated,
to the first computerized systems. I remember thefrequently incorporating sophisticated sales planning
manual system well, for there was a lot of handand inventory replenishment modules in them, capable
posting of sales information, and manual calculation ofof producing very detailed information and
weekly open-to-buys, all in an effort to stay in stocksophisticated demand forecast and inventory
on staple items, chase sales of the hot items, andmanagement models, it still requires a skilled merchant
not end up with overstocks that would obliterate ourto interpret the information and models, and act on it
markdown budgets.wisely. The applications can’t do your thinking for
Back then, there were buyers who were very skilledyou, and can’t make the carefully considered
at utilizing this manual system to maximize their salesdecisions that need to be made day in and day out
while keeping inventories in line. On the other hand,to effectively manage inventory.
there were also buyers who continually struggled toFor smaller retailers, who are using an enterprise-wide
make their inventory and turnover objectives. I(ERP) package targeted specifically to the small
remember this well, because several of myretailer, the issue is compounded by the limitations of
assignments were to come in behind these buyersthe demand forecasting and inventory management
and pick up the pieces.functions typically included in these packages. They
Come back to the present, and one of the thingsalmost universally have state of the art capabilities
that strikes me as I work with retailers today is howfor capturing and reporting POS data in any number
much some things remain the same. Despite all theof combinations, but only basic capabilities for
advances in retail information systems, many buyersforecasting demand and managing inventory (usually
and retailers are still turning their inventories tooin the form of a basic replenishment capability). The
slowly, tying up critical cash in inventory, and takingchallenge for smaller retailers using these packages is
heavy markdowns on excess and end of seasonto understand their limitations, and not to presume
overstocks.that the demand forecasting and inventory
This is not to say that there hasn’t beenmanagement functions are sufficient to effectively
remarkable achievements over the past 20 years inmanage their inventory. Frequently, off-system
managing inventories more effectively, for clearlyforecasting and open-to-buy tools need to be
advances in retail information technology has enableddeveloped to get the job done.
the leading retailers in all segments to continuallyThe basics of retailing remain unchanged: Understand
establish new benchmarks for inventory efficiencyyour customers and their needs and expectations,
and productivity.utilize past history and current trends to accurately
Still, for all of the advances in retail demandforecast future customer demand, plan inventory
forecasting and inventory management applications,levels to meet that demand, flow receipts in a timely
inventory and merchandise management remains justmanner based on those inventory plans, plan end of
as much an art as it does a science. For all of theseason inventory levels to minimize markdown
capabilities that have been built into theseexposure, and keep your eye on the whole thing day
applications, it still requires a merchant’s touch toin and day out, updating plans continually as the
take that information, interpret it, and utilize it toseason progresses. And to do all this effectively,
generate sales and gross profit increases. It is criticalalways keep in mind that the technology that helps
for retailers to remember that these applications areyou do this is a tool, not a “solution”.