Retailers
Retailers appear to accept shortages and surpluses in consumer products as a fact of life. Every season shops run out of the really popular items and at the same time shops must discount large quantities of slow movers that did not sell so well – either during end of season clearances or in so-called outlet stores. These phenomena are well known, but do retailers and their suppliers have to accept them as a fact of life? Can’t a supply chain find a way to dramatically reduce the problem and create for itself a decisive competitive advantage? What happens to the first to be able to do so?
Forecasting and Actual Consumer Behaviour:
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Forecasting:
How much retailers expect to sell of any article, group of articles and in each store is usually decided well before a season has even started. To allow time for production and distribution to the stores (often from Asia) the decision on what article and how much to make is made well before the start of a season sometimes a year before consumers see the article in shops. The die is cast well before consumers have seen the article and even longer before the consumer has expressed an opinion about his or her preferences. What will be popular this season becomes clear only after inventory is produced and displayed in stores.
The forecaster has nothing to go on about the future – he can only use history as a guide – plus what ‘experts’ tell him will be the fashion (colours, style etc.) for that type of product in the coming season. He will also know what the fashion experts are saying in the various publications – publications that (try) to guide consumers to the ‘right’ article for them to buy. If a forecaster has the time available he can study all the various opinions and decide for himself how the consumer will react – but will he be right?
The forecaster and buyer are therefore in a terrible dilemma – buy a lot of those articles they believe will sell well and risk being terribly wrong; or buy more or less the same quantity of all articles (in the ratios of sales of similar products last year) to hedge their bets and minimize their risk of standing out – as a failure (or a huge success). How many forecasters and buyers are likely to choose the risky option? They might buy a little more of those items they think will be more successful. Whatever they do it will be a compromise, probably biased towards lower risk!
If this is the case, what is the unavoidable outcome? Clearly every consumer product supply chain will suffer from surpluses of those items that turn out to be less popular and shortages of the popular items. Would the result be much different if everyone took the risky route – to bet all of their purchases on what they believe should be the popular items? Averaging over all buyers the result will be more or less the same since nobody knows what the consumer will actually do – nobody knows what causes consumers to flock to whatever become the popular items next season. Even over time forecasters and buyers that take the risky route would end up near the average – if they were allowed to keep their jobs after a disastrous season*!
So, the need to be safe guarantees forecasters and buyers will take the minimal amount of risk and surpluses and shortages will be perpetuated. This is not news, but maybe it should be recognized and reflected upon by consumer goods companies when they make their strategic and tactical production and distribution plans.
*If forecasting were an accurate science, sales and outlet stores would be a much smaller factor in a retailer’s sales.
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