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How Can a Retail ERP System Improve Accuracy in Demand Planning?

Using a retail ERP solution for demand planning

The changing retail landscape is putting greater importance on accurate demand planning. Retailers must produce reliable inventory forecasts that factor in uncertainty about the economy and shifting consumer behavior.

That’s where a retail ERP system can help. It greatly improves product forecasting, allowing retailers to adjust to varying lead times while minimizing potential supply chain disruptions.

Let’s say you want to know how many ice scrapers you should stock for the winter months. Start by reviewing your historical and seasonal data by item or item group, and then decide what external factors are going to influence that historical number. If everything — the weather, economic climate, political environment, fashion and entertainment trends — is exactly the same as last year, you should order the same amount of ice scrapers.

Of course, it’s highly unlikely that every external factor would be identical to the year before. A retail ERP system can’t predict external events, such as a hurricane, that will affect your inventory level or supply chain. However, it can do the “math,” such as computing when inventory will run out, and provide historical data as a base to apply your predictions.

Accurate inventory forecasting will depend on the nature of the item: is it a staple or a trend? Women’s fashion, for example, is more unpredictable in terms of inventory trends than cereal. Retailers have to go with what is coming out of the fashion shows or what the manufacturers are saying will be hot sellers. Of course, it’s up to the individual retailer to decide how much and which sizes to stock.

Inventory forecasts don’t complete the whole picture when it comes to demand planning. Next comes lead time, meaning the time between ordering your product to when it’s delivered to your store. That’s going to boil it down to the reliability of your suppliers. A retail ERP system can help manage vendor performance information so that you can make changes if necessary to ensure smooth supply chain flow.

Here’s how it works: After entering all the necessary information in a retail ERP system, you find that you’ll need to replenish a specific product by a certain date. You get that item from a vendor whose lead time may be three weeks or three months out. The retail ERP system will factor in the vendor’s lead time when anticipating inventory replenishment.

The challenge is accumulating accurate data for the retail ERP system. Let’s say you have a vendor that isn’t well established; one order you place takes one week lead time, but the next order takes four weeks. That’s going to affect best-laid plans calculated by your retail ERP system.

That’s why many retail ERP systems include vendor performance analysis. It can track vendor purchase orders, whether the vendor honored the agreed price, price increases, order lead times and more. So, if you order the same product from two different vendors, your retail ERP system can track the relevant information for you to choose the vendor that will be the most reliable in meeting your demand planning in a pinch.

Political unrest, natural disasters and other external events can also greatly affect your inventory and supply chain. Have you noticed that gas prices increase during hurricane season? Gasoline retailers are factoring weather in their prices. A retail ERP system can help alert you to seasonal trends, so if you have a supplier along the Gulf Coast, you may want to increase your safety stock during hurricane season to minimize supply chain disruption.

Another note on minimizing disruption: Instead of solely relying on historical information from your retail ERP system, you should include your vendor’s forecasting data, which includes anticipated ship dates or their projected lead time. For example, imagine your retail ERP system says you’ll run out of stock mid-month, but your vendor’s next ship date isn’t until the end of the month. You may be able to get the stock from a different vendor or negotiate an earlier ship date. The more information you integrate with your vendor’s forecasting data, the less likely you’ll exhaust your inventory.

With greater demands to effectively manage resources while maximizing profits, a retail ERP system will greatly improve accuracy in demand planning.