Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

Suppliers’ Dilemma: Top-down Versus Bottom-up; New Study Examines the Value of Point-of-Sale Data in Forecasting

11.03.2011
As retail environments become more competitive, manufacturers experience greater pressure to strike a balance between satisfying customers and minimizing costs. These suppliers struggle to accurately predict or forecast demand for goods.

A new study by a University of Arkansas logistics researcher confirms that relying on retail point-of-sale data can increase the accuracy of predictions and reduce forecasting error. But contrary to recent findings, the new study also revealed that in specific situations point-of-sale data might not be as accurate as simple order data from client stores.

The so-called “bottom-up” approach to forecasting demand for goods relies on point-of-sale data, or raw sales information, which retailers share with each other and manufacturers. This approach allows manufacturers to plan production based on overall consumer demand.

In contrast, “top-down” forecasting refers to a forecasting approach in which manufacturers do not have access to point-of-sale data and therefore must depend on order data from client stores and distribution centers. In these cases, the manufacturer must create a single forecast for a retail company’s total demand and then disaggregate that forecast for each distribution center or store.

Manufacturers and industry analysts assume that point-of-sale data consistently leads to greater accuracy, but the new study found that simple order data may be more useful for forecasting demand at the account level, which includes individual retail stores and distribution centers. This top-down approach is also more useful, the researchers found, when manufacturers are trying to accurately predict long-term issues such as production and capacity planning.

“Conventional wisdom holds that suppliers can exploit point-of-sale information to improve forecasting performance and supply-chain efficiency,” said Matt Waller, logistics professor in the Sam M. Walton College of Business. “While this is true for the most part, it doesn’t tell the whole story. In most cases, order forecasts based on point-of-sale data exhibit lower forecast errors than those based on order data, but there are specific conditions when a top-down approach based on order data can achieve more accurate demand forecasts.”

Waller and Brent Williams, assistant professor at Auburn University, empirically tested claims about the performance of top-down versus bottom-up forecasting. They then investigated whether a given supplier’s demand forecast, when based on shared, point-of-sale data, might be more accurate than forecasts based on order data. Overall, the researchers found that sharing the right data in appropriate contexts leads to greater accuracy when forecasting demand in the retail supply chain. In other words, the choice of a method – top-down or bottom-up forecasting – depended on the availability of shared, point-of-sale data.

“We find that the superiority of the top-down or bottom-up forecasting as the more accurate method depends on whether shared, point-of-sale data are used,” Waller said.

Firms benefit from a top-down approach to demand forecasting when they do not have access to point-of-sale data and must rely on order data for long-term planning for production. Furthermore, in this same context, a top-down approach should be used for short-term planning and shipping forecasts to distribution centers. When available, point-of-sale data can increase forecast accuracy and improve performance of short-term issues, such as inventory and transportation planning, the researchers found.

The study also gives retailers new insights. For example, large retailers share their point-of-sale data with suppliers generally because they have the technology and resources to do so, but this type of sharing may be even more beneficial for small retailers.

The researchers’ findings were published in the Journal of Business Logistics.

Waller holds the Garrison Endowed Chair in Supply Chain Management.

CONTACTS:
Matt Waller, professor, department of marketing and logistics
Sam M. Walton College of Business
479-575-8741, mwaller@walton.uark.edu
Matt McGowan, science and research communications officer
University Relations
479-575-4246, dmcgowa@uark.edu

Matt McGowan | Newswise Science News
Further information:
http://www.uark.edu

More articles from Business and Finance:

nachricht Corporate coworking as a driver of innovation
22.11.2017 | Fraunhofer-Institut für Arbeitswirtschaft und Organisation IAO

nachricht Mathematical confirmation: Rewiring financial networks reduces systemic risk
22.06.2017 | International Institute for Applied Systems Analysis (IIASA)

All articles from Business and Finance >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Long-lived storage of a photonic qubit for worldwide teleportation

MPQ scientists achieve long storage times for photonic quantum bits which break the lower bound for direct teleportation in a global quantum network.

Concerning the development of quantum memories for the realization of global quantum networks, scientists of the Quantum Dynamics Division led by Professor...

Im Focus: Electromagnetic water cloak eliminates drag and wake

Detailed calculations show water cloaks are feasible with today's technology

Researchers have developed a water cloaking concept based on electromagnetic forces that could eliminate an object's wake, greatly reducing its drag while...

Im Focus: Scientists channel graphene to understand filtration and ion transport into cells

Tiny pores at a cell's entryway act as miniature bouncers, letting in some electrically charged atoms--ions--but blocking others. Operating as exquisitely sensitive filters, these "ion channels" play a critical role in biological functions such as muscle contraction and the firing of brain cells.

To rapidly transport the right ions through the cell membrane, the tiny channels rely on a complex interplay between the ions and surrounding molecules,...

Im Focus: Towards data storage at the single molecule level

The miniaturization of the current technology of storage media is hindered by fundamental limits of quantum mechanics. A new approach consists in using so-called spin-crossover molecules as the smallest possible storage unit. Similar to normal hard drives, these special molecules can save information via their magnetic state. A research team from Kiel University has now managed to successfully place a new class of spin-crossover molecules onto a surface and to improve the molecule’s storage capacity. The storage density of conventional hard drives could therefore theoretically be increased by more than one hundred fold. The study has been published in the scientific journal Nano Letters.

Over the past few years, the building blocks of storage media have gotten ever smaller. But further miniaturization of the current technology is hindered by...

Im Focus: Successful Mechanical Testing of Nanowires

With innovative experiments, researchers at the Helmholtz-Zentrums Geesthacht and the Technical University Hamburg unravel why tiny metallic structures are extremely strong

Light-weight and simultaneously strong – porous metallic nanomaterials promise interesting applications as, for instance, for future aeroplanes with enhanced...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

See, understand and experience the work of the future

11.12.2017 | Event News

Innovative strategies to tackle parasitic worms

08.12.2017 | Event News

AKL’18: The opportunities and challenges of digitalization in the laser industry

07.12.2017 | Event News

 
Latest News

New type of smart windows use liquid to switch from clear to reflective

14.12.2017 | Physics and Astronomy

BigH1 -- The key histone for male fertility

14.12.2017 | Life Sciences

Guardians of the Gate

14.12.2017 | Life Sciences

VideoLinks
B2B-VideoLinks
More VideoLinks >>>