Newsflash to wholesalers: your customers don’t have the same needs.
The statement seems obvious. Clearly a grocery wholesaler knows that a C-store will order differently than a supercenter. Pharma distributors know a local drugstore will have wildly different needs than a regional hospital.
Yet for too many companies, wholesale forecasting still revolves around the creation of a single demand forecast for an entire range of customers. This broad, all-encompassing approach results in costly misalignments of supply and demand, eroding margins during already difficult economic circumstances.
Wholesalers need to get a lot more granular with their forecasts to address unique customer needs and preserve healthy profit margins. Channel-specific forecasts take unique customer behaviors and needs into account to provide segmentation and accuracy that broad demand forecasts can’t. Wholesalers should use these forecasts to reduce operational inefficiencies, improve service levels, and save money in the long run.
What is channel-specific wholesale forecasting?
Channel-specific forecasting (commonly channel forecasting) is the process of creating separate demand forecasts for different customer segments to increase forecasting accuracy. Each segment (or channel) is composed of customers who share similar behaviors or qualities that cause them to order alike. And each forecast offers wholesalers the ability to cater to these unique behaviors specifically instead of grouping them together with dissimilar customers.
Wholesalers can customize channels to fit their needs. A single channel could include:
- A single high-volume customer
- Similarly behaving customers, like a band of mom-and-pop C-stores
- Customers with unique ordering and delivery stipulations
- Retailers located in the same physical area
- A specific sales channel, like ecommerce
Many wholesalers have historically focused on how many products are ordered instead of where these products end up going. But zeroing in on specific customer segments allows wholesalers to better anticipate demand shifts and better manage their inventory. An auto parts wholesaler, for example, could create a segment for a group of discount tire companies, enabling them to stock up on the appropriate amount of winter tires ahead of cold-weather months without experiencing delivery peaks.
Why channel forecasting is superior to traditional wholesale forecasting
Accurate demand forecasting isn’t easy on the best of days, so suggesting wholesalers create multiple forecasts for unique segments might seem like a doozy — a fundamental change to supply chain planning processes. But those wholesalers who do make the upgrade to channel forecasting often point out three big ways it outperforms traditional wholesale forecasting processes:
1. Multiple channel forecasts are more accurate than a single traditional one
Broad forecasts don’t take into account the nuances of individual types of businesses, whereas channel forecasting allows you to optimize inventory per individual customer segment.
Imagine your biggest customer suddenly takes a product out of assortment in some or even all of their stores. Their demand for the product would drop to zero, but the rest of your customers would still order it. A broad forecast couldn’t anticipate this change for that specific customer—but a channel-specific forecast comprising your biggest customer could.
The use of granular data like assortment and promotional decisions increases forecasting accuracy, greatly improving inventory optimization efforts. It’s a welcome alternative to the under- or overstocking that’s more likely to occur with broader forecasts. An understocked warehouse means missed sales opportunities and even contractual penalties, but an overstocked one can result in spoilage and costly markdowns. These costs hurt wholesale margins even in the best of economic circumstances, let alone the current state of disruption and high inflation.
2. Channel forecasting encourages retail partners to collaborate
Wholesale distributors are almost always a degree removed from the end consumer, often forcing them to react to changes instead of properly anticipating them. Efforts to gain insight into consumer demand are often thwarted by poor collaboration with retail partners. Limited collaboration also reduces visibility into retailer strategies like planned promotions or range changes.
The promise of optimal availability provides wholesalers with extra leverage when asking for pertinent planning data, like POS data. High-volume customers with stringent contractual obligations will appreciate a wholesaler’s ability to prioritize product quality and delivery for their channels — and wholesalers won’t mind avoiding potential fines from OTIF violations. These efficiency improvements will leave customers more satisfied — and more willing to put effort into sharing that all-important retail data to improve forecasting for their wholesale partners.
3. Channel forecasting allows wholesalers to modernize supply chain planning
We get it: the ol’ spreadsheet-and-clipboard approach to forecasting worked well enough for a long time, especially considering the technological limitations of the past. But wholesale supply chain management has become immensely more complex since the analog glory days. Economic hard times and shortages in both labor and materials have impacted both customer and consumer behaviors. Demand shifts in a heartbeat, often rendering manually created forecasts obsolete when it comes time to actually order new inventory. And the embrace of ecommerce channels have only added extra layers of complication to the proceedings.
This issue is especially troublesome for wholesalers, who must consider an entire range of customers that don’t always behave the same. Any given planning team can struggle to create a single unified forecast for its entire portfolio of customers. It would be impossible for that same overtaxed team to manually create multiple unique forecasts for various segments of customers — let alone forecasts that are accurate and easily adjustable.
Wholesalers wanting to take advantage of channel forecasting need a digital solution capable of performing the task. Smart planning platforms automate channel forecast creation and adjustment, freeing up planners to focus on value-adding tasks that only humans can do. Meanwhile, forecasts update daily with the most recent data from various relevant sources to ensure the highest possible accuracy.
3 keys to creating smarter, more accurate channel forecasts
The benefits of channel forecasting are exciting enough that wholesalers may want to dive in head-first. But there are a few topics companies must wrangle first to ensure that their channel forecasting efforts get off on the right foot:
1. Know your customers
You need to understand your customers’ needs, behaviors, and strategies if you hope to segment them properly. And even then, you must consider an approach to segmentation that best aligns with your goals. Is geographic proximity your biggest concern when forecasting, or does it make more sense to forecast by niche?
Knowing your customers also means understanding their contracts through-and-through. Heavyweight customers likely have stipulations in their contracts concerning on-time delivery and availability that may make them unsuitable for segmentation with other, less stringent businesses. These companies may need to be a segment unto themselves to ensure your forecasting meets their particular needs.
A wholesaler’s data model can be the main driver for choosing which channels make sense. Channel forecasting is a difficult task for a company lacking the ability to identify unique customer attributes in their own sales data. On the other hand, companies with established collaborative processes can base their decision on their customers’ promotional and assortment data.
2. Identify the appropriate number of channels
Granularity in channel forecasting is what makes it so exciting, but it is possible to go a bit overboard. A wholesaler with 300 customers doesn’t need to create a unique channel for each customer and then create 300 separate channel forecasts.
Wholesalers should instead look at their existing customer base and find the optimal number of channels — the inflection point between increased optimization and increased complexity. The correct number of channels will differ between businesses. Wholesalers new to channel forecasting may want to start with broad strokes and fewer channels before experimenting with more selective and granular segmentation.
3. Get the right software
Whether a wholesaler forecasts for four channels or 14, they need a planning solution that actually allows them to build channel forecasts in the first place. This isn’t a standard feature across the board, with some platforms incapable of performing channel forecasts and others only able to forecast for a limited set of channels. Interested parties should do their research to find a planning platform capable of meeting their channel forecasting needs.
Improve wholesale forecasting accuracy with a robust planning platform
Wholesalers need to take advantage of every possible avenue for boosting margins in trying times—and the right planning software can improve more than just the forecasting aspect of supply chain planning. The best planning platforms facilitate better collaboration with suppliers and customers, help with end-to-end inventory planning, and even help wholesalers manage their workforce.
Wholesalers reliant on manual or dated systems may balk at the thought of investing in new software, but we’d argue that they can’t afford not to update and that they’ll see ROI quickly from the right platform.