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What is meant by a forecast?

Ian Hall, COO

In an ideal world all suppliers would not only receive data which can accurately forecast their demand levels, but also have the systems in place to be able to interpret it. For retailers and suppliers a forecast’s primary purpose is to predict the stock levels needed in depots/stores. In the majority of cases getting this right is at best, a rarity.

Defining a forecast

A key problem that is often overlooked is the definition as to what a ‘forecast’ actually is. Even the GCA (Groceries Code Adjudicator) themselves are unable to provide a simple definition, and so it is clear to see why it is difficult to determine whether or not retailers have adhered to standards.

Forecast accuracy

Forecasts can vary hugely, and whilst there is no right answer as to which best meets the requirements of GSCOP, some are clearly more useful than others. For example, an annual prediction of the volume of every product which will be purchased from a supplier (a joint business plan?). This is great as it encourages collaboration between supplier and retailer. The problem here arises when both internal and external factors lead to the forecast changing drastically over the course of a year.

Compare the previous to perhaps a 14-day daily prediction of short-term product sales, allowing for weather and promotions. You could argue that yes, this is a more accurate forecast (thus adhering more to GSCOP) but its downside is being short-term focused. The question still remains as to which of these are the ‘forecast’ that GSCOP requires retailers to share with suppliers? Furthermore, which type of forecast is best for which supplier? Fresh produce suppliers will need a more short-term forecast than say those in the ambient sector.

Another problem is the metrics used to determine ‘forecast accuracy’. Taking a 1 month forecast as an example, at day 30 the forecast is – 1000 cases needed. On the day before the order the forecast is now at 400 cases needed, which is then the number of orders the retailer places. Does this mean that the forecast given was 100% accurate or 40%?
The GCA are there to ensure retailers treat their suppliers fairly, whilst also providing guidance on common pain points such as forecasting. Meaning what is perhaps more important is whether or not retailers have adhered to standards.

Conclusion

So what should retailers provide to suppliers to ensure accurate forecasts?
How often should this happen?
And in what format?

Our comprehensive guide to successful demand forecasting discusses all of the above and more! You can download it completely free of charge here “Grocery retail suppliers – 4 critical elements for successful demand forecasting”.

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