August 29, 2007, 12:00 AM

Web-enabled systems help retailers better forecast demand

Web-based systems are helping retailers keep more of the right product in stock at the right time.

Cooking.com is on a roll. Having already added new sites this year to its stable of online stores operated for big-brand partners including StarbucksStore.com, BettyCrockerStore.com and PillsburyStore.com, last month it launched another, FoodNetworkStore.com.

For Cooking.com, which controls inventory for each of its partner sites, where it sells a mix of its own brands and those of its partners, the multi-site strategy has translated into continued robust growth in revenue, which rose 25% last year to $50 million at its flagship site Cooking.com alone.

But additional site operations mean a huge and complicated expansion in the volume of sales it must forecast to ensure it has the right products on hand to produce the highest sell-through rate. And with its products occasionally featured on NBC’s “Today Show,” the national publicity can cause sales of some products to suddenly surge, explains Bryan Handlen, Cooking.com COO.

“We can get a 100% increase in year-over-year sales of some products,” he says. So Cooking.com can use all the help it can get in planning adequate supplies for future sales, he adds.

The retailer, in the middle of converting its e-commerce platforms to the latest version of Microsoft Corp.’s .Net technology, gets that help from a demand forecasting application from JustEnough, which helps the merchant get a handle on what it can expect to sell across its multiple sites in the weeks and months ahead.

The winds are blowing

Cooking.com is not alone. Facing pressures posed by fragmented markets, increased competition and, of course, fickle consumers, retailers are forced to get a better handle on which way consumer whims are blowing to better forecast what and how much they are likely to sell.

Market research shows they need help. 50% of consumer products retailers and suppliers take more than one month to sense changes in customer demand, research and advisory firm Aberdeen Group Inc. notes in a July 2007 study of more than 140 companies, “The Responsive Supply Chain: Managing Market Events in the Consumer Goods Industry.”

“This is unacceptable in today’s business environment,” says the report’s author, Nari Viswanathan, research director for supply chain and logistics.

More retailers are using some form of demand forecasting, web-enabled systems or otherwise. Web-enabled demand forecasting systems like the one used by Cooking.com are making it more feasible to pull and share information needed to forecast sales. Of the companies in the Aberdeen study, 70% were showing significant improvements in out-of-stock situations by better planning merchandise according to customer demand.

Taking control

Concern over demand forecasting is pushing more retailers to take direct control of their available inventory, experts say. “We see demand for better demand forecasting driven by many retailers taking more responsibility for sourcing products themselves rather than relying on an outside agent,” says Kathryn Cullen, an analyst and principal at retail consultants Kurt Salmon Associates. “Retailers are providing information to their vendors on what they think they’ll need over the next year or two.”

One big trend is retailers and consumer products suppliers getting involved in more fact-based discussions, says Eric Peters, CEO of TrueDemand, a vendor of web-enabled demand forecasting technology. “Wal-Mart started the trend with its RetailLink, and now more retailers and suppliers are sharing point-of-sale data, and retailers are asking suppliers to help them make better business decisions,” he says.

“It’s all about that moment of truth when the consumer is at the store shelf,” Peters adds. “The demand forecast is an important part of that equation, and retailers and suppliers are talking more about how they can own that consumer experience at the store shelf. Instead of just viewing the retailer itself as the customer, more suppliers are viewing the retailer as a vehicle to the consumer. So the retailer is a partner.”

Retailers and suppliers have for years shared information for basic replenishment of commodities, though in many cases such efforts have been hampered by slow exchange of information shared on electronic spreadsheets and paper documents. In contrast, today’s demand forecasting systems, relying heavily on web-enabled technology to share information among a retailer’s internal databases as well as with trading partners, go beyond more basic replenishment procedures, which are more short term and based on more limited data on recent sales.

“Demand forecasting is a cut above replenishment,” Cullen says. “It factors in more data, including prior-season sales, to see what retailers will need in the next season. So it’s more sophisticated and aimed at the long term.”

Developments in Internet technology-providing the ability to integrate information among multiple applications to produce demand forecasts, and universal browser access to information-are at the core of newer demand forecasting systems, Cullen adds. “Web enablement is very important to demand forecasting,” she says. “Most sourcing tools are also web-enabled, which is critical so retailers can share information with suppliers around the world.”

XML programming language, web services and application integration supported by web-enabled service-oriented architecture, or SOA, play a crucial role in enabling demand forecasting systems to gather and analyze disparate information-including point-of-sale data, invoices, promotional activity and inventory records-that can be sorted and analyzed using special algorithms for producing forecasts.

Cooking.com maintains about 7,000 product SKUs in its distribution center, but also manages information on close to 100,000 more SKUs either drop-shipped by its suppliers or kept in facilities of its merchant partners.

Before deploying the JustEnough Unlimited Demand Forecasting and Inventory Planning system three years ago, Cooking.com would take several days to first analyze inventory stocks, enter SKU details for each product into a purchase order, then fax the orders to suppliers. In the meantime, managers responsible for bringing in new products in time to meet expected customer demand had no way to quickly tell whether some SKUs were already out of stock, resulting in lost sales and disappointed customers.

“Before we started using the system, we didn’t get to all SKU items with the frequency we can today,” Handlen says. “Now we get a more thorough review with fewer people involved. And because the system factors in more information and uses algorithms, we get a more sophisticated forecast.” Among the results is a 38% reduction in inventory costs because of the ability to maintain leaner stockpiles without risking out-of-stock situations, he says.

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