Revionics’ mission is to increase retailer profitability by enabling better management of price, promotion, markdown, inventory, assortment & space. Revionics is unique in that we offer an integrated solution that shares a common demand forecast across all of these functions. In this article, I answer the question, “Why is an integrated solution better than individual point solutions?”

First, let’s cover some basics. A demand forecast is more accurate if it accounts for all price, promotion, and markdown activities. For example, demand will increase during promotions. In addition, the demand forecast must account for seasonality including holiday lift, day of month, and special events. Finally, the demand forecast must reflect cannibalization and affinity. For example, we’ve seen promotions on Campbell’s Tomato soup cannibalize Chicken Noodle and drag along sales of Kraft American Cheese used to make toasted cheese sandwiches.

Second, let’s not confuse a demand forecast with a sales forecast. A demand forecast estimates how much you might sell, while a sales forecast estimates how much you will sell. Why is there a difference? In short:  assortment , space and inventory. Let’s take an example:  Suppose that the demand forecast for Tide Detergent is 30 units in a given store for a given week. However, the assortment planogram allows just one facing with a shelf capacity of 7 units. The workforce plan calls for the shelf to be replenished every three days. At most you can sell only 21 units during a given week. The sales forecast must be lower than the demand forecast.

Let’s consider just pricing for a moment. Suppose we are modeling and optimizing prices in a category. The prices will be implemented in the store in six weeks. Optimization recommends decreasing the price on Hefty Recycling Bags. However, the assortment plan shows that these bags will be discontinued in 8 weeks. An integrated solution won’t waste the price change on an item that is being discontinued—a point solution would.

When it comes to assortment and space planning, integration with price, promotion, and markdown is easy to justify. Any item that is discontinued from the assortment should automatically go on markdown. Assortment and space optimization depends on price and promotion. For example, an item may be eliminated from the assortment if its price is high, but at a lower price, it might make the assortment cut. An item may have enough facing for everyday pricing, but what if the item is promoted frequently. Then the shelf space should be supplemented by either an end cap or a display. Or, suppose an item does not make the assortment cut, until one considers the lucrative vendor incentives received for promoting that item.

There is also the argument that if the demand is so high that I keep running out, I may either want to increase price, or increase the number of facing. Which is the best choice? Only an integrated solution can provide the answer.

There are several examples where Inventory optimization depends on price and promotion. Everyone knows that promotions can have a huge impact demand and consequently on order quantity. To a lesser extent, the same is true of base price changes. But does everyone understand how a promotion might cannibalize sales. For example,  an general merchandise retailer might have a location with only 25 packets of Fruit of the Loom t-shirts on the shelves.  Normally this would not be enough, but due to a promotion on Hanes t-shirts, the cannibalization of Fruit of the Loom means I have more than enough.

Another consideration is avoiding vendor disconnects. For example, suppose a vendor offers an incentive and the retailer runs a promotion. The vendor may have planned for 100 cases but the retailer’s demand forecast is 200.  If the vendor doesn’t have the supply to meet demand, the retailer suffers lost sales. This can be avoided by sharing the demand forecast with the supplier thru the Revionics Collaborate, our Supplier Portal.  Here, the retailer can share the promotion plan and the forecast with their trading partners, and the supplier can submit deals that are better tailored to meet demand expectations.

An integrated solution solves many problems for both the retailer and the vendor. While this all may seem too advanced, consider the pace of change in the world today. Revionics is actively driving change and delivering tomorrow’s solutions today.

Ideas are like tomatoes. They start out small and green, but if the circumstances are right, they grow and ripen until they bear fruit. That is definitely the case for Revionics’ idea to provide retailers with One Integrated Forecast.

The idea was born years ago. At the time retailers had multiple contradictory forecasts: one forecast was used for financial planning; another for replenishment; another for workforce management. There was a store forecast for all categories and a category forecast for all stores—but the two did not match at the enterprise level. There were forecasts at daily, weekly, monthly, quarterly, and annual levels—when rolled up these didn’t match either. None of the various forecasts provided the accuracy necessary to make good business decisions. Retailers could not accurately or consistently predict their business. If a business is not predictable, then how can it be managed?

The idea was to provide retailers One Integrated Forecast that is accurate and meets all planning requirements. Let’s break this down into three components:

One. Replace the set of disparate forecasts with one forecast.

Integrated. Include all planned price and promotion activities. This includes merchandising activities such as displays and signage; and advertising such as circulars and flyers. It also must account for direct marketing such as email and offers to loyalty card customers.

Accurate. There are three measures of accuracy:
1.    Bias. The aggregate across all items and stores is unbiased.
2.    MAPE. The mean average percent error is small.
3.    Confidence. The accuracy of the confidence interval is high.

The factors that can influence the forecast accuracy include:
1.    Seasonality. Monthly, quarterly, bi-annual, and annual cycles.
2.    Holidays. Flexible calendar of holidays and events with pre- and post- holiday lifts. Ability to define custom events.
3.    Trends. Year-over-year trends either up or down in sales.
4.    Cannibalization. Substitution effect where a promotion on one item takes sales from another similar item.
5.    Affinity. Drag along sales where a promotion on one items drives sales of another item.
6.    Weather. Factor in the impact of weather.

Revionics offers One Integrated Forecast with unparalleled accuracy because it accounts for all the factors listed above.

We recently were working with a grocery retailer who wanted to reduce shrink in his produce section. He frequently promoted tomatoes and believed that with a more accurate forecast he could avoid ordering too much—leading to higher shrink, and he could avoid ordering too little—leading to stock outs. He knew that when he promoted red roma tomatoes it reduced the demand for hot house tomatoes, but he couldn’t quantify the amount until he used Revionics Promotions Planning module. He was able to forecast both the red roma and the hot house sales during the promotion with more accuracy. The result—no stock outs and less shrink. Revionics Forecast, delivering One Integrated Forecast to retail, is an idea that is ripe on the vine and ready to harvest.