In 1983 Benjamin Libet, researcher in the Department of Physiology at the University of California, performed one of the most famous and controversial experiments in the history of neuroscience.
In simple terms, Libet's experiment measured and timed the response of the neural circuitry of the brain, based on some very basic commands – like moving your left wrist, followed by your right wrist. What he discovered is that there is a time lapse between the decisions our neural circuitry makes for us and our awareness of the situation.
What that means, in a nutshell, is that for basic operations and requests the brain has already been hardwired, or ingrained, into a conditioned response, basically without thought. The brain has seen this movie (or ask) so many times that the response is automatic.
For us folks who are working on changing people's behaviors and habits, we can relate. People become ingrained in current practices, processes and ways of thinking and it usually takes considerable time and effort to change – the thinking and the response.
Libet, however, didn't stop there. Further work, research and experiments concluded that there were generally only two ways to change the history of the brain as it relates to a specific ask or task. They are asking WHY and making a JOKE of the situation.
To date, most retail planners, consultants and solution providers have firmly cemented and ingrained the thinking that to systemically create a forward looking time-phased forecast by item/store (or webstore) requires that you forecast at multiple levels and then spread the higher level forecasts down to the lower (store) level.
Initially the thinking was that the aggregate level forecast would be more accurate, and that is usually the case. But some people realized that the higher level forecast was of no value – it's the lowest level of forecast that drives the integrated supply chain.
Asking and wondering WHY enough times eventually surfaced that the higher level forecast was really only helpful in determining a selling pattern, especially for slower selling products where a pattern was difficult to detect.
Our colleague, Darryl, not only understood but asked WHY it was necessary to forecast at a higher level. Couldn't the pattern be determined, at the selling location, without the need and complexity of forecasting at a higher level.
Eventually, he arrived at a simple, sensible solution. In a previous newsletter, I outlined the key elements of the approach but the key elements of the approach are:
- An annual forecast is calculated, along with a decimal forecast (by day and week) for the 52 weeks that comprise the annual forecast
- A category or department level selling pattern is calculated at the store location (or other's if needed)
- Simple user forecast thresholds are applied against the annual forecast to determine the forecast time period and how to determine the selling pattern – including using the category/department level pattern from above for slow sellers (to get the sales pattern)
- The same thresholds determine whether to convert the decimal forecast to integers
- For the forecasts that will be converted to integers, a random number between 0 and 1 is calculated, then the small decimal forecasts are added from there and once the cumulative forecast hits 1, then an integer forecast is 1 is used in that period, and the counter and randomizer starts again…this logic is applied to the 52 week forward looking forecast
Now, while the above is tougher to write to help understand, our experience in outlining this to people is that they not only understand, but it makes intuitive sense to them.
This solution was originally key functionality of the RedPrairie Collaborative Flowcasting solution and is now available within the jda solution set, aptly named JDA Slow Mover Forecasting and replenishment.
Yes, but does it work?
The graph below outlines the sales forecasts of our recent implementation of Flowcasting at a Canadian hardgoods retailer, using this exact approach:
As you can see, a significant number of products are slow or very slow sellers (54% sell less than one unit per month at a store). However, using this approach the company was able to improve in-stock by 6%, while also reducing and improving inventory performance.
Having an integer-like forecast for all these item/store combinations is important since it allows them to calculate time-phased DC and vendor replenishment plans, along with complete capacity and financial projections – allowing them to work to a single set of numbers.
In addition, the solution is so much simpler in terms of understanding, flexibility and processing requirements.
Given the above, people should embrace this solution full tilt. This should be a no-brainer, right?
Our old villain, ingrained, has helped cement the view of higher level forecasting in retail.
It's ironic, and a little sad, that a number of people and companies who advise and help companies change and learn new and presumably better ways have not embraced this approach, and instead are still pushing old, tired and ineffective solutions.
They need to ungrain their thinking (ungrain is the opposite of ingrain and yes, I made this word up!).
My advice is simple: if you're a retailer who is forecasting at a higher level, or you're someone who's pushing this approach, please stop.
Learn. Understand. See it yourself. Ask WHY. And, importantly…
Ungrain the old and begin to ingrain the new.