In this article, we’re going to sketch out a basic approach to demand planning strategy that could make your drinks distribution business more profitable.
But first, why strategising and planning according to demand so important.
In a nutshell, the benefits are lower stock, lower logistics costs, and increased profitability. Better demand forecasting can help you cut down your finished goods inventory – ensuring you buy in just enough to cover your needs. For your bonded warehouses, it means that only the necessary inventory is moved out of the bonded area at the right time (therefore cash isn’t tied up in fees where it doesn’t have to be). You may also see a fall in your transportation costs, thanks to an increased capacity to keep your logistics team up to date on which vehicles, staff and inventory are required in each given time and place.
With a lower margin for error within your forecasts, the temptation to overbuy will not be so great. That will mean fewer scrambles to get rid of excess stock at unprofitable prices, less stock going out of date on your shelves, and less cash tied up in your warehouse. Ultimately, these improvements to efficiency will results in better overall business performance and, ultimately, more revenue.
How do I implement a demand planning strategy?
Rolling out improved demand forecasting across your entire inventory is a daunting task. That’s why it’s far better to start with a few products in order to develop a proof-of-concept. Focus on two or three products which have caused you forecasting problems in the past. This will help avoid the risk of worsening aspects of your forecasting while you iron out any preliminary kinks.
Trend projection and statistical analysis
Through analysing their sales over time, drinks sellers can make predictions – with varying levels of sophistication – on how much stock they will sell in future. Many take the relatively-simple and effective approach of studying the volume of sales made on the corresponding day, week or month, in previous years. This information can be used to plot a graph that provides an indication of how future sales might look, which in turn can be used to determine how much inventory the company needs to stockpile. Increasingly, drinks suppliers are using business intelligence software to automate these processes – and also benefiting from reports generated off the back of this data.
Surveying consumers can provide insight into how variables affect buying behaviour. This approach can be used to provide evidence for or against hypotheses used in statistical analysis, e.g. “90% of customers in our survey said they would be more likely to buy a fruit cider on a sunny day. This supports our data, which shows sales of this product type are x3 higher in summer than they are in winter.”
Fickle consumers and demand volatility
Demand volatility is particularly pronounced in the drinks industry, due to a vast array of variables including the weather, other vendors’ promotional activities, micro- and macro-economic factors, and special events held at individual clients’ venues.
Mini Case Study
Take drink sales at a music venue for example: Let’s say a venue sold exactly the same quantity of tickets for two gigs on consecutive Friday nights. You may therefore assume they would see a similar amount of stock sold on both. However, if the first night’s performer is a Thin Lizzy tribute act, and the second is a Justin Bieber impersonator, there could be similar differences in sales – on the first night they may sell out of beer; but on the second they may sell out of soft drinks. This is just one of countless examples that illustrate the challenge facing demand forecasters – consumers’ tastes are just as fickle as their musical preferences.
Lightening the Logistics Load
It’s possible to help demand forecasters out by making sure processes across the organisation are as efficient as they can be – this means increasing certainty, confidence, and delivering with speed.
This will likely require a degree of client education. Gentle reminders are necessary to highlight the fact that the earlier they place their orders, the smoother the transaction will be from the supplier end. Less obvious, but perhaps most pertinent to quick order-capture, will be the technology used to make this happen.
Ideally, it should take the client no more than a few minutes to place an order on the online web portal and have an order receipt in their inbox. This will come down largely to the user experience of your client-facing order taking software.
Some drinks distributors assist this process by using order-taking software that facilitates repeat orders in a few taps/clicks, or automatically recommends products based on the account’s history.
This applies just as much to the internal order creation process that ensues when a client’s order is taken. By automating admin and internal communication tasks from that process it’s possible to improve the speed and accuracy of order creation – which, in turn, will give your demand analysts better data, sooner.
Conclusion: Control Fluctuating Demand
Doing what you can to improve your demand planning strategy is key to business growth. It’ll help you maintain the level of service customers expect when demand goes up, and avoid issues including over-staffing and stock wastage, when it goes down.
No company does this perfectly, and no company ever will. However, every seller has the capacity to improve – and that will mean improved efficiency, happier customers and higher profits.
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