For consumer goods companies with omnichannel sales, downstream demand is a key signal to consider when thinking about inventory allocation, new product launches, demand planning, and other decisions. However, not all downstream demand is created equal.
To minimize lost sales due to stock-outs, companies must measure against true demand. But what is true demand, and why is it so important? We had the opportunity to give a presentation on this topic at the TPA Supply Chain Conference earlier this year alongside Procter & Gamble (P&G) Customer Supply Chain Manager, Ula Iriarte, and Ahold-Delhaize USA Director of Replenishment, Ashley MacLearn. In this post, we’ll highlight some of the key points we discussed.
First, an example
At a high level, measuring true demand is important because it helps reduce lost sales that stem from stock-outs. As an illustration, imagine that a shopper comes to Food Lion in Mount Holly, North Carolina, and intends to purchase Crest 3D White toothpaste, but finds that the store is out of stock.
She may decide to purchase a different brand’s whitening toothpaste instead, which would be revenue lost for Crest’s parent company, P&G. Or, she may decide to make the trip to a neighboring Target, where the Crest is in stock, which would be revenue lost for Food Lion’s parent company, Ahold-Delhaize. In both scenarios, the stock-out has led to a lost sale, and in aggregate, this affects both consumer goods companies and the retailers they sell through.