The Future of Automated Forecasts and Ordering

European retailers are already using automated demand forecasting and computer-assisted-ordering software solutions. U.S. companies, however, have taken a watchful backseat when exploring these options. Daniel Brandon, executive VP and general manager for automated ordering and replenishment company SAF USA, Grapevine, Texas, talked with Chain Store Age Web editor Samantha Murphy about why more domestic retailers should make the switch now.

Chain Store Age: Why is there a stigma attached to automatic ordering?

Daniel Brandon: The past is littered with failed computer-assisted-ordering projects. The greatest challenge is getting retailers to understand that today’s solutions are vastly improved. They offer a significantly lower risk and a greater return than solutions used in the past.

CSA: What other challenges are affecting retailers’ commitment to automated ordering?

Brandon: Perpetual inventory at store level is a requirement to do demand-driven automated ordering. Many U.S. retailers have never done perpetual inventory.

Many retailers are concerned that perpetual inventory and automated ordering will increase labor at store level. Some are worried that they don’t have the proper employee skill sets at the store level. And others are concerned about whether a system can effectively deal with promotions and other events that influence consumer buying behavior.

Today’s solutions effectively deal with all of these concerns.

Retailers that make the commitment find the solution has a terrific value proposition. It provides both top- and bottom-line improvements, including more than a 50% reduction in out-of-stocks and more than 30% reductions in excess inventory levels. These improvements also have a significant impact on customer satisfaction.

CSA: What is the penetration of the solution in the retail industry?

Brandon: While there is still low penetration here in the U.S, we are definitely seeing movement. We have customers that started a couple of years ago that are now aggressively rolling the solution out to their stores.

So far, the grocery industry seems to be very keen on it. I also see interest from drug, home improvement and consumer electronics retail segments.

CSA: Retailers need to be open to change to use these solutions, correct?

Brandon: Once a company begins an automated-ordering initiative, it will learn that some of its internal business processes are the enemy of computer automated ordering. For example, headquarters often generate push-orders and are not typically micro-forecasted demand-based. This causes either too much or too little inventory.

Warehouse substitutions are another challenge since they are based on available merchandise, not consumer demand.

However, many successful automated-ordering implementations are occurring even among these business practices. To get the full benefit however, a company would need to address these processes.

CSA: How soon do you expect it will be until these processes become mainstream?

Brandon: Ithink 2007 and 2008 will be significant growth periods, and many retailers will initiate projects. This is not a quick project or something that can be implemented overnight.

Companies that don’t start in the next two years will be behind the curve. Within five years, I think almost everyone will be embarking on some type of demand forecasting, just to keep up with their competition.

CSA: What is the industry’s next step?

Brandon: Retailers’ first step is to become demand-driven. Demand-driven retailing begins at the store, proceeds to the warehouse and eventually comes back to the supplier. Metro Group, which runs the SAF solution at its retail stores and in its warehouses, is a good example of a demand-driven company.

Once retailers start down this demand-driven path, they have the opportunity to make improvements beyond just delivering goods. I believe these early steps lead to more improvements for retailers, and these improvements will have a dramatic impact on a retailer’s future.