The Impact of Poor Forecasting Techniques on the Retail Supply Chain

Sahir Anand
Managing VP, Research & Strategy (Tech. & End-User Programs)

New research by EnsembleIQ suggests that retail supply chain professionals navigate many hurdles and hazards, including demand forecasting-related challenges such as real-time visibility into supply chain inventory, unforeseen market risks, and a lack of forecast accuracy. To stay on track, they rely on a range of replenishment strategies, primarily demand-based replenishment, store-to-store, and vendor managed inventory, while continually looking for ways to improve. Six in 10 retailers, in fact, report that they are taking steps to increase inventory visibility and reduce cycle times, according to the “Strengthening the Retail Supply Chain: A Survey of 50 Leading U.S. Retailers” report.

Beyond outside business pressures, what keeps retail supply chain professionals up at night? Many cite concerns about clarity and confidence involving demand forecasting, both in their own business processes and toward the market as a whole. The top responses include a lack of real-time visibility into supply chain inventory (43%) followed by unforeseen market risks (40%). Many also report a lack of forecast accuracy (34%). These challenges are consistent across professionals in small, medium and large formats, suggesting these issues are at the fore in every area of retail.

Most retail supply chain professionals give high marks to allocation and inventory planning capabilities, with either rated good or very good by eight in 10 survey respondents. Forecasting capabilities earn less enthusiastic reviews: Just six in 10 consider the technology enabling their supply chain forecasts to be good or very good.

Any growth-minded business knows that staying ahead of the pack requires keeping on top of the latest innovations. For retail supply chain technology investments, organizations are most inclined to spend on systems that help increase stock availability and decrease stock holding (58%). Software that reduces time spent digging through data is also worthy of investment — 52% of retail supply chain professionals say their organization will invest in capabilities that cut down on number crunching — as is anything that helps companies keep pace with expansion. Forty-four percent invested in new technology because their old systems couldn’t cope with growth.

As retailers ramp up their efforts to leverage the latest technology in all areas of supply chain management, innovations in artificial intelligence are poised to enhance every link within the chain. The artificial intelligence (AI)-powered supply chain will operate on a single, unified platform in which each link supports and strengthens the others.

AI holds enormous potential to improve supply chain efficiency, and forward-looking retailers already have begun investing in these technologies. One in three say they have implemented AI capabilities into their supply chain management processes, and one in four are working toward that goal.

Retailers say AI’s greatest potential to improve supply-chain management relates to quality and speed. Fifty-nine percent selected either “real-time supply chain updates” or “quality control” as the supply chain processes most likely to be impacted by the integration of AI. Other predictions for AI include improved demand management (49%) and the ability to identify and address inefficiencies (44%). Access the complete data findings from the recent released retail supply chain industry report here.

To discuss, retail and consumer industries innovation issues, trends and technologies, please contact Sahir Anand at [email protected] or @sahiranand.

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