Introducing Retail 101

As part of my effort to cover diverse areas of retail, I am planning to include a post once a week which will describe some key concept in retail using published articles or information gathered from academia. The idea behind it is that it will help better understand some of the terms which are often taken for granted in standard industry white papers and news briefs. So starting this week with the concept of Demand Forecasts . In retail there are 2 key things customer satisfaction and lesser inventory. Now if you always had full stock of every item that you had to offer, there will never be any stock outs and thereby a customer will never go back not being able to buy what he wants to. But there is a cost to it - till the time that someone buys the item, your money is locked into that item. That money could have been invested somewhere or kept in your savings account and would have earned some intrest. So what am I getting to? If you could read the minds of all your customers in terms of what they want (kind of like Mel Gibson in What Women Want) then there wouldnt be a problem. You could place orders accordingly and satisfy your customers and keep your inventory low. Sadly, very few people (or maybe no one) has that kind of clairvoyance. Thats where forecast comes into picture. So like in every relationship, as time goes by you begin to understand the other person/party better, as time goes by you gather an idea of what your customers buy, how much they buy and at what time they buy. And using this information you start predicting what they would want in the near future. That is in some way a forecast. Ofcourse its easier said than done. Several forecasting models have been created and its as much an art as a science to select the correct forecasting model. There are other factors like promotions etc. which can change your forecast. I came across a very good article in Supply and Demand Chain Executive by Atul Mandal who is a project manager with Plan4Demand a boutique consulting firm. Mr Mandal is ofcourse more experienced in forecasting and explains very well some of the underlying concepts behind choosing a forecasting model. Thats our Retail 101 for this week...stay tuned for another one next week.