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 McGowan | Newswise Science News
How Strong Brands Translate into Money
15.11.2016 | Kühne Logistics University - Wissenschaftliche Hochschule für Logistik und Unternehmensführung
Demographic change depresses tax revenues
04.11.2016 | Fraunhofer-Institut für Angewandte Informationstechnik FIT
Physicists of the University of Würzburg have made an astonishing discovery in a specific type of topological insulators. The effect is due to the structure of the materials used. The researchers have now published their work in the journal Science.
Topological insulators are currently the hot topic in physics according to the newspaper Neue Zürcher Zeitung. Only a few weeks ago, their importance was...
In recent years, lasers with ultrashort pulses (USP) down to the femtosecond range have become established on an industrial scale. They could advance some applications with the much-lauded “cold ablation” – if that meant they would then achieve more throughput. A new generation of process engineering that will address this issue in particular will be discussed at the “4th UKP Workshop – Ultrafast Laser Technology” in April 2017.
Even back in the 1990s, scientists were comparing materials processing with nanosecond, picosecond and femtosesecond pulses. The result was surprising:...
Have you ever wondered how you see the world? Vision is about photons of light, which are packets of energy, interacting with the atoms or molecules in what...
A multi-institutional research collaboration has created a novel approach for fabricating three-dimensional micro-optics through the shape-defined formation of porous silicon (PSi), with broad impacts in integrated optoelectronics, imaging, and photovoltaics.
Working with colleagues at Stanford and The Dow Chemical Company, researchers at the University of Illinois at Urbana-Champaign fabricated 3-D birefringent...
In experiments with magnetic atoms conducted at extremely low temperatures, scientists have demonstrated a unique phase of matter: The atoms form a new type of quantum liquid or quantum droplet state. These so called quantum droplets may preserve their form in absence of external confinement because of quantum effects. The joint team of experimental physicists from Innsbruck and theoretical physicists from Hannover report on their findings in the journal Physical Review X.
“Our Quantum droplets are in the gas phase but they still drop like a rock,” explains experimental physicist Francesca Ferlaino when talking about the...
16.11.2016 | Event News
01.11.2016 | Event News
14.10.2016 | Event News
09.12.2016 | Life Sciences
09.12.2016 | Ecology, The Environment and Conservation
09.12.2016 | Health and Medicine