Retailer harvests benefits of One Integrated Forecast

Retailer harvests benefits of One Integrated Forecast
March 2, 2010 Revionics

Ideas are like tomatoes. They start out small and green, but if the circumstances are right, they grow and ripen until they bear fruit. That is definitely the case for Revionics’ idea to provide retailers with One Integrated Forecast.

The idea was born years ago. At the time retailers had multiple contradictory forecasts: one forecast was used for financial planning; another for replenishment; another for workforce management. There was a store forecast for all categories and a category forecast for all stores—but the two did not match at the enterprise level. There were forecasts at daily, weekly, monthly, quarterly, and annual levels—when rolled up these didn’t match either. None of the various forecasts provided the accuracy necessary to make good business decisions. Retailers could not accurately or consistently predict their business. If a business is not predictable, then how can it be managed?

The idea was to provide retailers One Integrated Forecast that is accurate and meets all planning requirements. Let’s break this down into three components:

One. Replace the set of disparate forecasts with one forecast.

Integrated. Include all planned price and promotion activities. This includes merchandising activities such as displays and signage; and advertising such as circulars and flyers. It also must account for direct marketing such as email and offers to loyalty card customers.

Accurate. There are three measures of accuracy:

  1. Bias. The aggregate across all items and stores is unbiased.
  2. MAPE. The mean average percent error is small.
  3. Confidence. The accuracy of the confidence interval is high.

The factors that can influence the forecast accuracy include:

  1. Seasonality. Monthly, quarterly, bi-annual, and annual cycles.
  2. Holidays. Flexible calendar of holidays and events with pre- and post- holiday lifts. Ability to define custom events.
  3. Trends. Year-over-year trends either up or down in sales.
  4. Cannibalization. Substitution effect where a promotion on one item takes sales from another similar item.
  5. Affinity. Drag along sales where a promotion on one items drives sales of another item.
  6. Weather. Factor in the impact of weather.

Revionics offers One Integrated Forecast with unparalleled accuracy because it accounts for all the factors listed above.

We recently were working with a grocery retailer who wanted to reduce shrink in his produce section. He frequently promoted tomatoes and believed that with a more accurate forecast he could avoid ordering too much—leading to higher shrink, and he could avoid ordering too little—leading to stock outs. He knew that when he promoted red roma tomatoes it reduced the demand for hot house tomatoes, but he couldn’t quantify the amount until he used Revionics Promotions Planning module. He was able to forecast both the red roma and the hot house sales during the promotion with more accuracy. The result—no stock outs and less shrink. Revionics Forecast, delivering One Integrated Forecast to retail, is an idea that is ripe on the vine and ready to harvest.