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In Search of the Perfect Forecast Model: Transforming from a Linear to a Responsive Supply Chain

Tue, Jan 27, 2015



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Supply chain leaders have been seeking the perfect forecast for decades: the ability to predict supply and demand with uncompromising certainty that would help them meet consumer demands more accurately. But this perfect forecast has proven to be more and more elusive when confronted with the unpredictable nature of the fashion industry.

In recent years, we've seen a rising surge of volatility, making forecasting even more unreliable. This, coupled with recent moves toward same-day delivery, omni-channel inventory fulfilment, and a growing network of e-Commerce giants have set a new industry service standard, which brands are finding it difficult to follow.  

As channel boundaries continue to blur, and consumers demand more options from retailers such as in-store pick for online orders or endless inventory regardless wherever they shop, expectations for speed, agility and convenience are forcing retailers to revamp their supply chains. 

The Traditional Model is dead

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Supply chains of today are not built to manage this demand, and are already creaking under the strain of the new omni-channel world. In fact, the explosion brought on by mobile shopping, paired with the advent of online retail trends such as showrooming and webrooming have severely underscored the pressures fashion companies face.

The rise of uncertainty becomes even more acute when faced with the inability to predict market trends. This new normal of deep-seated market volatility contributes to the lack of supply chain resilience, as retailers struggle to handle cross-channel inventories and customer service levels.

In the traditional planning model, a company would typically plan and execute on that exact plan. Most often, the company that constructed the most accurate supply chain plan, and executed accordingly, was at a greater advantage to compete.  Still, information about what actually happened in the supply chain would always be available only days or weeks later.

Yet, in today’s global and distributed supply chain, the shelf-life of a plan is short, and subjected to unexpected changes, leaving any plan outdated. The reason is simple: the dynamic environment in which supply chains operate today requires re-running of the plan, through which adjustments can be made in real-time. If not, the time required to re-run the plan could be greater than the time available to respond, leading to manual adjustments that run the risk of hampering operational conditions.

The Need for a Supply Chain Revolution

Serial and Hierarchical Processes: In many companies, planning and execution are still largely disconnected, which hinders any effort to reduce supply chain latency. Assembling the vast amount of data to support planning processes requires time-intensive data extraction and consolidation. Oftentimes, the data, which the plan is dependent upon, is outdated before execution. Even with Sales and Operations Planning (S&OP) in place as the primary integration point between planning and execution, companies today lack the tools to support the process, and instead rely on manual data collection and analysis.

Optimized for Stores: Up until recently, all a retailer had to worry about was optimizing fulfilment in their brick-and-mortar stores. Keeping their shelves stocked was the most important concern, which typically entailed a retailer ordering in bulk and placing trust in their merchandise plan.  This simple setting no longer exists. Nevertheless, today’s supply chains are generally optimized for stores, with online often regarded an add-on. This legacy model leads to poor coordination across the supply chain, affecting cross-channel operations such as inventory pools and fulfilment processes. This results in higher markdowns, and out-of-stock situations. 

Limited visibility into demand and supply: Supply Chain visibility has been painstakingly sought out over the decade, yet, it remains elusive. As supply chains become increasingly complex due to outsourcing, globalization and multi-tier sourcing relationships, lack of collaborative planning remains one of the major pain-points, making it difficult to gain a single view of demand and supply across channels. 

Leveraging Sense and Respond: Building the Consumer Demand-Driven, Responsive Supply Chain 

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Today’s supply chains are not set up to respond to unforeseen changes, because static planning cannot be the foundation for the decision-making needed to compete in today’s volatile industry. Managing today’s supply chains requires sensing changes, and responding to unanticipated market conditions in real-time by re-planning and re-allocating to demand fluctuations as and when they occur.

With this sense and respond capability, supply chains will operate in a more granular timescale, through which real time visibility means invaluable insights into real-world trends. Supported by applications that allows enterprise visibility and integration, retailers are able to dynamically re-plan replenishments for better fulfilment rates, re-allocate inventories to improve service levels, and optimize logistics to better anticipate consumer demand. 

Predictive analytics will play a big role in a sense and respond model. Generating insights based on accumulated data, companies will be able proactively apply insights into their supply and demand plan, such as social media data, product reviews, and purchase history to better meet consumer demand. Ultimately, retailers and brands who leverage this flexible sense and respond supply chain model can seize opportunities based on actual demand.

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