Now is the time to get smarter at Purchasing and Forecasting

Our recently published 2017 E-Commerce Fulfilment Report uncovered a number of challenges and growing pains for e-commerce retailers of all sizes, including both pure-play and multichannel businesses.

Not least in the area of Purchasing and Forecasting. A quarter of respondents all agreed that the ‘thorny’ subject of Purchasing and Forecasting, or Demand Planning, as it’s also known, is the most pressing area of fulfilment requiring their attention.

We probably knew this outcome was going to be a ‘no brainer’ in advance of asking the question, bearing mind it is a common bugbear of retailers but so essential to successfully growing any type of e-commerce business. Ironically, for a subject so often seen as a somewhat inexact science, it proved to be totally predictable as the number one pain point!

Good Purchasing and Forecasting decisions help your business to:

  • Fulfil orders quickly and profitably
  • Maximise as many potential sales opportunities as possible
  • Keep on growing

As our report suggests, while sales growth remains strong and interest rates remain low, keeping stock that takes months to sell may be acceptable. You can get away with it. But with increasing competition, rising inflation and with the potential for rates and wages to rise in the future, the need for more precise and consistent forecasting and purchasing is becoming all the more apparent.

Buyer Beware

Buying is a tough job. But let’s step back a few paces and consider how an e-commerce business evolves. Typically in the early days of a start-up it’s the founder or co-founder who takes charge of the buying as well as the selling. Gradually as the business grows you recruit staff to take on this responsibility as an integral part of the Purchasing and Forecasting function – after all it’s become very time consuming and you have multiple responsibilities making demands on your time.    

Your Buyer is responsible for fuelling and re-fuelling the business with products consumers really want and want sooner than later. The greater volume and variety of product items (SKUs) selling quickly from your site, the faster and more profitably your business grows.

But that’s often easier said than done for the highly pressurised Buyer! Problems start arising once a few thousand SKUs are being juggled, trying to predict the right products to stock, how many, planning when they will be needed most - and when they won’t – and how fast they will shift so that enough space is available for yet more stock.    

Data is the Key

High quality data is the ‘SatNav’ for guiding retailers on what to buy, how much of it, and when.

But purely relying on historical data is nowhere near sufficient and will doubtless cause problems down the line. Just because, for instance, last August saw a sudden run on wet weather gear due to torrential rain, doesn’t mean this August will be exactly the same – it’s as likely there will be a heatwave (we hope in the UK at least!). Sure, there are some events you just can’t predict or plan for, such as a celebrity endorsement on a product you happen to offer, or an item suddenly going viral on social media.

For those businesses serious about improving their Purchasing and Forecasting, the availability of up to date and accurate data is going to be essential for providing the market intelligence to thoroughly analyse which items are popular and be sure they are easy to source.

To this last point and to ‘insure’ against the unexpected, it may also be prudent to put in place multiple supply lines as is already emerging in fast fashion retailing. For example, having those suppliers which are fast to source but at a premium price, and others which have a longer delivery lead time but are lower cost.

In many cases, much if not all, the data your buyers need for ‘seeing the wood for the trees’ is already available, inside your sales order processing platform, Enterprise Resource Planning (ERP) systems and Warehouse Management Systems (WMS). The latter, for example, should be allowing real-time visibility of current stock levels and sales volume by suppliers, both of which are key indicators when planning what to buy.      

Collaborate!

But rather than shouldering the entire burden, buyers should look to their suppliers to help share the load. Get their product managers and merchandisers to use their expertise in analysing the sales cycles for the products they are looking to sell to you. And a Purchase Recommendation (PR) backed by a caveat that you can return goods if certain KPIs are not met.

Ask your suppliers to report on:

  • The expected rate of sales and volume of sales for your type of business versus competitors
  • Demographics including in which countries their products sell particularly well, matched against your key markets
  • Margin analysis
  • How best to sell their product (for example, alongside a complementary one)

Your space or mine?

Get smarter by saving time and de-risking slow moving inventory tying up space in your warehouse, not to mention the working capital you’ve already sunk into the stock.  

Ultimately, this means deciding whether to always have all items residing in your warehouse, versus a more ‘virtual’ approach through closer partnerships with key suppliers.

With the latter, consider back to back ordering. These days slick, reliable just in time global supply chains reduce the headache of trying to keep everything you sell actually in stock. On some products, for example, it could be more efficient and far less costly to only purchase and have them shipped to your warehouse following hard orders. Such an ‘on demand’ approach reduces the risk when faced with the ongoing challenge of growing the business through offering an ever more extensive range of products.   

Alternatively, or as well as, try selling direct from your suppliers’ warehouses. Connect their stock to your WMS system so there’s a clear real-time view of all products available for you to sell. A good way to trial this would be having suppliers initially manage the order fulfilment and delivery on certain items for you.    

Steps to Smarter Purchasing and Forecasting

Dig out the Data: The answers are in the data, not the tea leaves!

  • Interpret the data in a meaningful way: Spreadsheets and ERP systems are a good start but they don’t go far enough in helping you quickly interpret what you need to know
  • Bring the data to life: Don’t rely on historic data to advise you. Combine real-time inventory and warehouse systems (WMS) with Supplier Performance Data and your ERP Financials to help with more informed and precise decision making on what, how much and when to buy
  • Share the load: Collaborate with your suppliers for expert analysis and sales data on the product ranges you are planning to sell
  • Back to back: De-risk trying to stock everything you sell.  Consider an on-demand approach for selected product items  
  • Your warehouse is my warehouse: Connect supplier inventory with yours and have them fulfil on your behalf    

Taking on board some or all of these steps will help your business turn Purchasing and Forecasting from a ‘black art’ into a science which is altogether more precise and rewarding - for hard pressed buyers and the business overall.        

If you would like to learn more about making your Purchasing and Forecasting more efficient, contact us anytime for a free, no obligation consultation. To find out about all the benefits Peoplevox Warehouse Management Software could offer your e-commerce business; download our WMS Buyers Guide.