Every improvement in demand forecasting for your business improves customer retention and sales. During pandemics such as the one our country currently faces and other situations that limit travel, one forecast improvement can minimize lost sales. That is the elimination of customer loss from out-of-stocks.
Since March 2020, retail customers have increased the amount they spend while reducing the number of shopping trips. New competition cropped up so that customers have alternatives they did not just months ago. The one-factor overarching influence demand and with the potential to create out-of-stocks is the weather. This uncontrollable externality can cause immediate local sales trends.
While you may already include the weather in your current demand planning and forecasting, weighting it more heavily in your algorithms can help create a better picture of demand. This improves analytics so store managers can make manual adjustments to replenishment systems instead of relying on historical sales data for projections and automated ordering. Implementing weather analytics or optimizing their inputs into your existing algorithm can decrease out-of-stocks by at least 20 percent.
While customers do spend more on each trip now, retailers, especially grocers have experienced increased operations costs. They have added delivery labor, curbside pickup, and many added online ordering that did not already have a system in place. This increased the importance of each dollar spent in the stores and elevated customer retention needs.
Let’s consider an example of how weather impacts sales. The National Weather Service (NWS) issues forecasts on many time-scales, but you can plan best using its three-day forecast. Anything longer than a three-day forecast has ample opportunity for weather patterns to alter.
Changes in oscillations in any of the oceans changes weather patterns throughout the world. This impacts stores in the central US, for example, even if the oscillations occur in the Atlantic Ocean. These changes can happen in hours, so you might go to bed with temperatures in the 70s, but wake up to an unexpected cold snap that makes temperatures a chilly 40 to 50.
People purchase different grocery items in warm weather than in chilly or cold weather. With temperatures in the 70s, people might grill outdoors or picnic. When temps fall into the 40s or 50s though, people turn to soups, chili, and hot cocoa. Overnight, your demand changes. You had plenty of grilling steaks stocked, but only a few cans of chili and ten boxes of cocoa in stock.
Using demand forecasting software ensures you have updated reports. You can set things to provide hourly updates or every six hours, etc. You choose the actions the software takes. You can have it send an alert to the manager when the weather will change by specified criteria. This allows the manager to manually order from the nearest warehouse or transfer a product from a store outside the weather affected area. You can also typically set it to automatically increase the daily delivery of specific products based upon specified criteria.
Integrate weather considerations into your demand forecasts and planning. Do not let bad weather cause you to lose customers. Let it provide you with an opportunity to be a hero to your customers.
