Forecasting product demand is an arduous process for merchants, but it’s critical to avoiding the twin challenges of out-of-stocks and excess inventory. A new study reveals that only 34.7% of wholesale supply chain executives say their current inventory planning process provides actionable insights on customers, inventory and demand — and that they are fully using those capabilities. Approximately the same number, 35.7%, say their planning processes offered only some of the information they needed, while 19.4% said their processes do not provide what they want.
These findings are a strong indication that more companies need to use all the data available to provide an accurate picture of their inventory requirements. The lack of these capabilities, or their under-use, can cause problems for wholesalers: 46% said more than 2.1% of inventory demand could not be filled from current on-hand inventory or supplies. Only 5% said they always have the right quantity on-hand to fulfill demands, while 35% say 0.1% to 2% could not be fulfilled.
Volatile Customer Demand Remains Top Supply Chain Challenge
When asked about the biggest challenges they expect to encounter in the next three years, supply chain managers identified:
- Complex customer demand patterns (37.4%);
- Increasing demand volatility (30.6%);
- Managing new product introducing (16.1%);
- Long lead times (12.6%); and
- Increasing supplier collaboration needs (9.5%).
In response to these challenges, companies are holding higher inventory levels to meet volatile and increasing demand. Of those surveyed, 34.3% held 31 to 60 days of inventory, while 21.2% held 19 to 30 days’ worth; 17.2% held 61 to 80 days’ worth.
These increased inventory levels are designed to store enough products to meet complex demands and enable companies to improve customer service. But they can also hamper a business if executives overestimate these demands, potentially leading to a glut of unsold inventory. All these factors make it crucial for wholesalers to adopt more advanced forecasting techniques.
While 84.6% of wholesalers say they currently use historical sales data for forecasting demand, only 5.2% use machine learning or AI. And many are still primarily relying on traditional demand factors embedded within their forecast models, such as price change impact (75.3%) and programs or promotions (71%). Only 12.9% incorporate social media influences.
When it comes to measuring success in supply chain planning and inventory optimization, 82.8% of respondents said they pay attention to customer service levels. Many supply chain executives also measure:
- Inventory turns (75.8%);
- Days of supply on-hand (62.6%);
- Inventory dollars (61.6%);
- Sales revenue (45.5%); and
- Improved forecast accuracy (30.3%).