Magazine Article | May 17, 2007

Maximize The Benefits Of Accurate Sales Forecasting

Source: Innovative Retail Technologies

A catalog company uses the full functionality of its inventory management system to streamline its purchasing process, reduce back orders, and improve fill rates.

Integrated Solutions For Retailers, June 2007

For more than a decade, Sundance Catalog Co. relied on an elaborate system of spreadsheets to help it predict how many products it was going to sell, how many items to order, and if it was going to meet its sales goals. But, many times those spreadsheets proved unreliable and inaccurate. This created inventory challenges for the retailer of jewelry, home décor, and women's apparel.

In 2002, Dievo Hagen became the director of merchandising and inventory control at Sundance. To Hagen, it was clear the spreadsheets weren't working. "We were buying the wrong things, and they were coming in at the wrong times," he says. "We had a growing inventory, and our fill rate was dropping."

Look To Existing Systems To Improve Operations
Hagen learned that in 2000 the company purchased an inventory management software application that wasn't fully implemented. The application was the Direct Tech, Inc. Forecast*21, which, among other features, can analyze data of past product sales in more ways than any spreadsheet. This inventory management tool provides a company like Sundance, which sells through multiple catalogs and the Web, the ability to have a comprehensive view of items sold.

Hagen had to prove that the inventory management application could be more reliable, accurate, and scalable than the old spreadsheets. To do so, he had Direct Tech staff come on-site for intensive training with Sundance's employees. Direct Tech loaded Sundance's database into the Forecast*21 system. For months, Forecast*21 was used in tandem with the old spreadsheet method until enough time had passed to convince Sundance's management team that Forecast*21 was more accurate. The ability of the Forecast*21 software to work with Sundance's existing mainframe system also was key to the company's choosing the application.

Strive To Achieve Just-In-Time Inventory
The Forecast*21 software suite has several modules. Sundance is using its forecast and planning module as well as its master scheduling module. The latter indicates when a product is going to run out, when a purchase order should be placed, and creates a daily 'hot list' of what needs to be ordered soon. "The inventory management tool tells me what I need to have in my inventory, when I will run out, and when I need to purchase more based on the vendor's lead time," Hagen says. "It is made to prevent you from running out of stock, but it also lets you know if you don't need to buy as much. Furthermore, it analyzes our return rates, selling curves, and sales of a catalog over time."

Increase Fill Rates, Decrease Back Orders
Sundance has seen significant growth in both its catalog and Internet sales since 2002, and in June 2007, it plans to open its first storefront. Throughout this growth period, Forecast*21 has adapted to accept more product information and manage the increased sales volume and forecasting demand.

"We have been able to sustain a long period of growth without having to hire more people," Hagen says. "Further, as we've used this tool, we've become more efficient, particularly concerning our purchasing." In fact, the inventory management tool has streamlined Sundance's purchasing process from beginning to end. For instance, the company's fill rates have risen from 75% in 2002 to 91% in 2006. In-stock levels have improved from an average of 78% in 2005 to more than 90% in 2006. Back orders also have been reduced significantly. In 2001, Sundance's peak level of back orders accounted for more than 30% of its sales, while in 2006 that number was down to 14%.

"Since we've implemented Forecast*21, we also haven't been sending as much product to our liquidation division to sell at a discount," Hagen says. "We now can better forecast sales for each of our items, [accounting for many different variables]. The software does all of the calculations, and the whole system is far less cumbersome than spreadsheets."

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