Demand Driven Planning in 2013

The availability of retail point of sale data over the past several years has created the opportunity for vendors to gain a detailed understanding of consumer demand at the retail point of sale.  Actual consumer demand at the retail point of sale presents a more accurate and timely picture of how your SKU’s are selling than retailer forecast advice or even retail purchase orders.  So why don’t all vendors collect EDI 852 or retail POS data from their customers and use it for creating forecasts and managing sales?  There seem to be several myths holding vendors back….

Myth #1: Collecting and analyzing EDI 852 / retail POS data is expensive and complex.  In a few limited cases like Home Depot and Menards it is true that the simple process of collecting the data has some expense.  Home Depot EDI 852 for example must be collected using a VAN so there are data transmission charges.  Menards charges a vendor to purchase a RSA SecurID.   But most retailers make EDI 852 or retail POS data available for free and even when there is a fee the benefits exceed the expenses.   Extracting the data, matching to item catalog details and store details does require some expertise but there are many SaaS applications now like Accelerated Analytics which will outsource the technical requirements for an affordable monthly fee.  By monitoring the consumer demand and inventory on hand at a SKU / store level of detail a vendor can proactively work with the retail replenishment manager to avoid out of stocks.  Every sale you get that would have been lost due to an empty shelf is returning value and paying for the expense of collecting and using the EDI 852 data.  How many lost sales do you need to recover a monthly data management fee that is typically less than $2,000?   At a chain like Home Depot with roughly 1900 stores in the USA the answer is not very many.

Myth #2:  My buyer won’t accept replenishment recommendations.  We hear this all the time – “I realize I could probably increase my in stock rate using EDI 852 / POS data but my retail customer uses automated replenishment or has a fixed open to buy plan so my recommendations fall on deaf ears”.  Several things are at work with this myth.  First, most vendors are operating on an assumption that if they talked to their buyer, they would discover is inaccurate.  I’ve talked to buyers at many retailers and I get a consistent answer – if the vendor can quantify the problem and provide an accurate order recommendation I will take it into consideration.  Second, the vendor has to demonstrate a competency in using the data for basic tasks like sales monitoring before they try to recommend orders.  I’ve seen countless examples of a vendor providing sales reporting and value to a buyer who then gains confidence the vendor can get the demand forecast right.  Finally, you have to start off slow.  Start with your highest turn products at your A volume stores and calculate the lost dollars sold for an 8 week period.  Then go to your buyer with a summary of your findings and actions to improve in stock and quantify the sales opportunity for both of you.  Make conservative recommendations to increase the WOS by one week so you gain back some sales but avoid loading the store with inventory and dropping your GMROI.  They have the same goal as you – to sell more product!

Every vendor that sells a product through a retail store should invest into analyzing retail point of sale data and using it for creating detailed action plans.  The data acquisition and reporting costs are very low when you consider them as a percentage of your retail sales and the upside benefits of increased sales, better assortment planning, and optimal inventory on hand are huge by comparison.  Let’s make 2013 the year that all vendors make the investment.