Why Capturing Lost sales is a key element of demand planing process

Turning Lost sales into an opportunity

Accurate assessment of demand is the key for product planning, order management and replenishment and for the entire supply chain. There are various opportunities to capture sales and lost sales – be it Reservations, Sales, Cancellations and Returns (only so against sales).

Lost sales is defined as an attempt by customer when she wishes to purchase an item, but is presented with an out of stock notification on order taking channel i.e. internet/mobile app or in-store stock checkers.

Lost sales is a key input that goes back into the Demand Planning systems and is considered as uplift in forecasting process for future time periods. Obviously any inflated figure causes wrong forecast and eventually a high inventory at different nodes in the supply chain. Most organizations have found it very difficult to normalize the true quantity before feeding it in demand planner as this required sophisticated data analysis.

Challenges

Foremost important task for demand planners is to segregate the real lost sales from the walkaways. For example, most of the wester retailers offer short lead time these days to gain market share. 1hr home-delivery is becoming a norm for retailers in US and Europe. This offering cannot exceed the carrier capacity for a particular day or delivery slot. Hence poses capacity constraint. Consider a scenario where the customer is offered a product on a short lead time and chooses not to purchase, this is not a true ‘lost sale’. Walkaways is captured when the customer displays intend to purchase a product, is offered the item on a lead time and they opt not to purchase.

The entire process of demand capture and filtration of the lost sales has to be supported by the technology backend: hardware interface and the corresponding software, the store system and the master data management system (usually Mainframe or RMS), where all the data is processed for filtering and finally tabulated for reporting tools

However, in real business scenario, there are many different applications that are used to capture the actual sales and lost sales, some of which are legacy. Third party companies usually own these applications and there is no documentation stored within client IT landscape on how do they work. As a result, it is very difficult to extract information to paint the complete picture.

Opportunity

Splitting the lost sales into ‘lost sales’ and ‘walkaways’ provides the demand forecasting team with the ability to view the number of customers walking away from a lead time proposition at a Store/SKU level, which can be used to inform ranging decisions and improve serviceability levels.

How do we actually do it

By initiating a process to identify these walkaways from lost sales, information captured from the stores (stock checker, tills and kiosks) and Internet(web, iPad, iPhone, Android, Apps, store browsers) should be carefully filtered down further to remove duplicates of any customer id (such as IP address) seen in the week already, and additionally by user configured filtering for exceptions to the general rule. The end result will be a file of accepted lost sales which will feed into the nightly/weekly forecast calculation batch run of the demand planning system.

Companies like Adobe provide specific applications which can be easily integrated to the front end digital channels be it IBM WebSphere commerce, Hybris or microservice based platforms for digital trade. Such applications are capable of capturing the customer journeys and business intelligence and strategic filtering can be configured to capture the true lost sales which should go back in Demand planning system.

End result of such effort is a more accurate factoring of true lost sales while generating future forecast. This will keep a check on the actual fulfilment of goods in Warehouses and Stores. Also, an optimum level of inventory can be achieved resulting in reduction of working capital.

We at Milk-Run Consulting specialize in Forecast Improvement Analytics and our seasoned supply chain consultants have worked with several clients bringing effectiveness in their demand planning process. This includes lost sales capture, deciding forecasting levels, disaggregation logics, setting up forecasting workflows, allocation to warehouse, measuring and improving forecast accuracy.

Please visit our homepage https://milk-run.co.in or drop us a line at bd@milk-run.co.in with your requirement and we will be in touch.

Team Milk-Run