The challenge of getting better sales forecasts to improve logistics planning is a centuries-old problem. In today’s eCommerce-driven supply chains, that challenge is tougher than ever. But many online merchants don’t realize the extent to which poor forecasts create inefficiencies in fulfillment operations and drain their profits.
Many eTailers are younger companies. They’re still fine-tuning their product mixes and have yet to recognize seasonal buying trends and the impact of certain promotions on sales. As a result, they struggle to accurately predict future demand. The task is made even tougher when a simple tweet from the right social media influencer can send a brand scrambling to satisfy an immediate ten-fold increase in orders.
That’s today’s reality, but it’s not an excuse to abdicate the important task of forecast planning. Online businesses must demonstrate greater rigor in forecasting sales demand. By providing proper guidance to the fulfillment team, you’ll keep inventory and fulfillment costs in check and increase profits.
The Downside of Poor Sales Forecasts for Online Businesses
Poor sales forecasts on the front end create a range of inefficiencies in back-end fulfillment operations.
Increased labor costs. When you experience unexpected demand spikes, it requires more hours to get the work done. That means overtime, mandated second shifts, and maybe even a weekend shift – all of which may increase hourly wages for the extra time.
Associate turnover. Today’s associates want a more predictable work schedule. If they don’t get it, they will seek employers that offer a more consistent work schedule. For each associate that leaves, it costs $7,000–$9,000 to find and train a replacement. Do eTailers trace those added expenses back to poor forecasting? Doubtful.
Poor quality. Unplanned demand spikes often require recruitment of more temporary labor. Brands struggling to meet a demand surge often send these workers to the warehouse floor with insufficient training. Not surprisingly, this results in errors, which in turn leads to costly returns and angry customers who may not buy again.
Inflated costs for retail orders. If you’re a multi-channel seller, you’ll see costs spike in other areas. Inaccurate or late shipments trigger chargeback penalties from retailers. And you may need to expedite a delivery, at your own cost, to meet a delivery-time commitment.
If you outsource fulfillment services, your attitude on labor-related cost increases may depend on the cost model for the services. If it’s a “cost plus” arrangement (you pay all the space and labor costs, plus an agreed margin to the 3PL), you’ll be motivated to provide better guidance on future volumes since all extra costs flow back to you. If the cost model is activity-based (you pay a set cost for the processing of each order), you may worry less about labor-related cost increases. But even with activity-based costing, 3PLs are likely to adjust pricing up if poor forecasts inflate their costs and lower their profit margins.
The answer to improved sales forecasts for eCommerce businesses
The answer to creating a better sales forecast for an online business is greater collaboration and data sharing across the enterprise.
Think about it. Logistics and fulfillment professionals respond to demand; they don’t create it. To plan effectively, you must get with the demand creators – the marketing people who plan promotions, launch new products, and monitor the hot sellers.
You may also need to talk with procurement managers, who know what inbound products are on the way or stuck at the port.
If you outsource eCommerce order fulfillment services to a 3PL, you’ll want to provide them with the forecast intelligence you gather, or get them together with your marketers and merchandisers to discuss how promotion activities may impact demand.
3PLs can also help you improve demand forecasts. They see your demand data daily and, over time, can recognize volume spikes or lulls linked to certain products or times of the year. Unfortunately, some 3PLs are simply passive receivers of forecast data who view forecasting as a customer responsibility. Look for fulfillment 3PLs that will proactively engage in forecasting discussions and even push back when the forecasts you submit don’t jibe with their own reports on historical volume trends.
What does a company that is good at forecasting look like?
This article is not a blanket indictment of all online merchants and their inability to create a sales forecast for an online business. Some do a fine job. But it takes work. Here are some of the things that the logistics leaders at these companies do to help their fulfillment partners operate with maximum efficiency:
- Educate internal functions on the importance of accurate forecasts
- Promote a spirit of collaboration among internal marketing and supply chain leaders and outside 3PLs, meeting regularly to understand future demand and supply
- Solicit feedback from 3PLs on volume trends
- Send a weekly forecast to the fulfillment operations team that is constantly updated to reflect the latest promotions and events that may impact volumes
Ultimately, mastering the art and science of accurate forecasting gives you, as a logistics leader at an online business, greater confidence in the ability of your fulfillment operation to support sales growth. You can advise your CEO and marketing leaders on the level of growth the fulfillment operation can support – now and in the future – as you build out a scalable fulfillment infrastructure. That’s a powerful advantage for growth-oriented brands.
Better forecasts = better fulfillment operations
Accurate forecasting has always been a key part of a healthy supply chain, but in today’s eCommerce-driven economy it’s more challenging – and more important.
To compete effectively, you need a highly efficient fulfillment operation that ships accurately and on time. If you’re fulfillment team or 3PL is falling short of these goals, poor forecasting could be the root cause. Contact Amware Fulfillment to discuss ways in which the right fulfillment 3PL can help improve sales forecasts for your online business.