Software advances could change replenishment game

Getting a grip on consumer demand has long been a challenge for manufacturers and retailers. But advances in forecasting software are making it easier for managers to determine how much stock will be needed in both the warehouse and the stores to meet customer demand. Today, a number of well-known supply chain software vendors such as Oracle, JDA, and SAP along with specialty providers like Churchill Systems and Teradata offer advanced demand forecasting software.

As more companies invest in software designed to better align supply with demand, the result will likely be a significant shift in distribution operations. "People are looking to get more real-time data to do more real-time forecasting to figure out how to replenish," says Gartner analyst Mike Griswold.

A few European retailers are showing the way, taking advantage of the granular level of real-time demand information to revamp replenishment practices. The demand signals originate with the retailer, who must be willing to share with suppliers its point-of-sale (POS) data, information obtained when a checkout clerk scans the bar code on an item being purchased.

Griswold told me that a couple of European food retailers are feeding store sales information into a central data collection and ordering system every 15 minutes to track demand. The central data warehouse records details on the type, size, style, and make of each item sold. That aggregated store information is then used to place item restocking orders with suppliers.

By way of example, Griswold cited the case of a well-known British retailer that has begun using the aggregated real-time information to restock its stores via a daily late-afternoon delivery run. Those afternoon deliveries ensure that store shelves are fully stocked when evening shoppers arrive. "Depending on what you get for that demand signal, you can incorporate what happened four or five hours ago in the late-day delivery, which is especially important for [restocking] promoted items," said Griswold.

Although European retailers are increasingly using POS data to trigger same-day restocking runs, this practice—dubbed "continuous replenishment"—has not yet taken hold in North America, according to Griswold. That's partly because frequent restocking is less practical in the United States than it is in Europe, where warehouses tend to be located closer to the stores. But it's also because U.S. retailers lag behind their European counterparts when it comes to adopting automated ordering based on POS data.

Griswold believes that's about to change. As retailers and manufacturers continue to combat margin erosion on products in an economic downturn, he expects American retailers to begin buying advanced demand forecasting software and start looking at ways to change their distribution operations. After all, if a store has a product in stock when the customer comes in looking for it, the retailer won't have to discount the item later, taking a resultant hit on its profit margin. For promotional sales items, in-store availability is even more crucial for maintaining margins.

"It's a hot topic for North American retailers," Griswold said of demand forecasting software. "A lot more people are talking about how they do forecasting and replenishment."