What is demand planning and how does it benefit your retail business? Here is everything you need to know.
If your customers want a product, but you don’t have it, they will buy it somewhere else, and you lose money. If you have an ample supply of a product that nobody wants to purchase, you get stuck with the products, and you lose money.
Here are the statistics to back up the importance of demand planning in retail: 65% of retailers consistently run out of stock of in-demand, fast-moving products. Also, 63% overstock and end up with too much inventory of slow-moving products. It gets worse. According to reports, out-of-stock retail items account for $634 billion in lost sales every year. Overstocks account for $472 billion in lost revenues. Throw in a global pandemic, and those numbers rise.
To avoid each scenario, you must understand the importance of demand planning in retail.
What is Demand Planning in Retail?
Unless you have psychic powers, you need a solid plan to purchase products your customers will love and then get those items into your boutique at the right time and at the right cost.
Demand planning can help you meet this goal. It helps you reduce overstocking and improves the chain of supply. For proper planning, break the areas of management into sections:
- Sales forecasting
- Supply chain management
- Inventory management
Sales forecasting is predicting what your revenue will be in the future. You must evaluate past and current data and sales using vendor, customer, and store reports to make this prediction. Some business owners use a formula to calculate this estimate:
- Estimate of the number of products to be sold X unit price = Cost of each product to be sold
- Cost of each product to be sold X estimated number of products to be sold
- Total sales – total cost
Keep in mind that factors both in and out of your control may change these numbers, like a nationwide pandemic and shutdown.
Supply Chain Management
A supply chain includes everything, and every person involved in manufacturing, wholesaling, purchasing, shipping, stocking, displaying, and selling to the customer. There are five major components of supply chain management, with the first being demand planning.
Another component is choosing the right wholesale supplier. If you can find a wholesale supplier that uses advanced technology to communicate with you, supply chain management will be much easier.
Inventory refers to everything in your boutique that is for sale. Your inventory management is how you receive, store, display, track, sort, and return the products for sale. Anything you do with products is considered management.
Inventory management helps you remain organized and efficient. You can easily track and retrieve products, saving you money and time. Properly managing your products can mean you don’t run out when customers still demand an item, so you get the sale and not another boutique.
Reports will be up-to-date, accurate, and easy to retrieve. Reorders and returns will be simpler, and management practices like cycle counting are quick and easy.
Demand Planning With Wholesale Suppliers
The right wholesale supplier can improve your demand planning processes. They want to see your boutique succeed because they want your repeat business. With demand planning, wholesalers can help you create a more effective plan for distributing your products. This will help you avoid stockroom issues, do a better job at making necessary adjustments, and replenish stock.
Collecting as much data as possible that you can share with your wholesale supplier will help both of you plan better based on customer demand, trends, manufacturers and production, shipping, and more.
Demand Planning Software
It’s crucial to get demand planning software, even if you must eliminate something else you want for your boutique right now. The software makes your life easier, and if it can connect to your wholesale supplier, you can complete tasks in a matter of minutes or hours versus days. Plus, it helps you keep up with or ahead of your competition.
Research shows 74% of retailers reported they would be using real-time inventory software in 2021. They are likely still using it if they did due to the enormous benefits. The software also allows you to sell online and, in your boutique, an opportunity to bring in even more revenue.
Simplify the Demand Planning Process
If you are like many fashion boutique owners, the business side of retail is more challenging than in other areas. Some experts find ways to simplify demand planning. Their tips include:
- Find ways to make forecasting more accurate, such as separating forecasting into categories, like the ones below:
- Understand what it is that makes your customers make a purchase:
- Need to buy a gift for someone
Research shows there are three specific reasons customers make a purchase when they are just out shopping and browsing: great price, special offer, or discount, and they see something they want in this order.
Demand Planning Models
While retailers use many models to implement demand planning, three are more common. These include:
Causal Demand Planning is recommended for retailers in volatile, multi-channel markets. It is based on the theory that one thing causes an effect on another. For example, bad weather may cause a drop in sales because customers will not shop at a retail store on bad weather days.
Qualitative Demand Planning is often used with new products that you don’t know how well they will sell in your boutique. For example, creating a social media or email survey for your customers to complete gives you feedback about a product.
Time Series Demand Planning is mainly based on data you have been able to gather from sales of the product to date, historical data.
In conclusion, these are just a few guidelines to help you start with demand planning. Don’t be afraid to ask your wholesaler, software representatives, and other boutique owners how they succeed at supplying a demand. Customer satisfaction is the ultimate goal, and demand planning can help you achieve it.