Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:


New Logistics Model Improves Forecast Accuracy of Retail and Packaged-Goods Orders

Whether it’s dog food or iPods, tires or televisions, virtually every consumer has endured a frustrating out-of-stock experience. Retailers hate it as much as customers, perhaps more, because they lose money and credibility.

Examining this problem at a specific link – suppliers and distribution centers – in the retail and consumer-packaged goods supply chain, a logistics researcher at the University of Arkansas and his colleague discovered that application of a common error-correction model improves the accuracy of forecasting orders.

“The statistical model we used provides a better understanding of orders in a supply chain and can improve short-term forecasting,” said Matt Waller, professor of marketing and logistics in the Sam M. Walton College of Business. “It has been used heavily in macroeconomics but not in logistics. Our theoretical analysis suggested such a method should improve short-term order forecasts, so we used it to forecast distribution-center orders and found that it reduced error relative to baseline methods used by the consumer-packaged goods industry.”

Within the retail and consumer-packaged goods industry – which affects American consumers on a daily basis – the inability to accurately forecast supply orders is perhaps the greatest obstacle to establishing and maintaining an appropriate amount of goods on retail shelves. Suppliers annually devote millions of dollars toward human and technological resources, including sophisticated and expensive software packages, to address the problem and still struggle to find the right balance.

Supplied with 104 weeks of data from a global consumer packaged-goods company, Waller and Brent Williams, assistant professor at Auburn University, tested the performance of the error-correction model in the ready-to-eat cereal, canned soup and yogurt categories and found significant improvements in order-forecasting accuracy. Their findings will improve important supply-chain measurement standards, such as inventory turnover, gross margin return on inventory investment and in-stock levels. Improvements in these areas will lead to greater service and convenience for consumers and increased profits for retailers.

Traditionally, commercial ordering systems used by suppliers have relied on simple retail order history or conventional forecasting models based on retailers’ point-of-sale data – but not both – to forecast future orders. However, recent changes in supply-chain processes have made it possible for retailers to share sales history with “upstream” supply-chain partners. These developments, Waller said, have generated interest in determining whether point-of-sale history, in conjunction with order data, can improve the ability of a supplier to more accurately predict retail orders.

The researchers first established theoretical evidence for the existence of a long-run equilibrium between point-of-sale information and retail orders, which implied that variables within this relationship followed an error-correction process. This allowed them to empirically examine whether conventional statistical conditions for using the error-correction model were apparent.

“We found several combinations where point-of-sale and distribution-center orders were co-integrated,” Waller said.

However, in a majority of the combinations in which point-of-sale information was non-stationary – meaning statistical properties of sales data changed over time – orders were stationary. Waller and Williams applied the error-correction model under these conditions and again found that it improved short-term order-forecast accuracy. Their analysis demonstrated that the model generally improved forecast accuracy even when some of the statistical conditions for applying it did not hold.

Waller said most commercial software packages can be customized to include the model as an option to suppliers, but the model requires both order history and point-of-sale data.

Presentation of the researchers’ manuscript on the study recently won the E. Grosvenor Plowman Award at the national Supply Chain Managers Education Conference in Chicago. A copy of the study is available upon request.

Waller holds the Garrison Endowed Chair in Supply Chain. He recently administered the Walton College executive M.B.A. program in Shanghai, China, where he researched global supply-chain management. He is systems editor of the Journal of Business Logistics, the flagship academic journal of the Council of Supply Chain Management Professionals. He is also co-editor of International Journal of Logistics Management.

Matt Waller, professor
Sam M. Walton College of Business
Matt McGowan, science and research communications officer
University Relations

Matt McGowan | Newswise Science News
Further information:

More articles from Transportation and Logistics:

nachricht Bremen University students reach the final at robotics competition with parcel delivery robot
19.10.2016 | BIBA - Bremer Institut für Produktion und Logistik

nachricht Discovering electric mobility in a playful way
18.08.2016 | Fraunhofer-Institut für Arbeitswirtschaft und Organisation IAO

All articles from Transportation and Logistics >>>

The most recent press releases about innovation >>>

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

Im Focus: Etching Microstructures with Lasers

Ultrafast lasers have introduced new possibilities in engraving ultrafine structures, and scientists are now also investigating how to use them to etch microstructures into thin glass. There are possible applications in analytics (lab on a chip) and especially in electronics and the consumer sector, where great interest has been shown.

This new method was born of a surprising phenomenon: irradiating glass in a particular way with an ultrafast laser has the effect of making the glass up to a...

Im Focus: Light-driven atomic rotations excite magnetic waves

Terahertz excitation of selected crystal vibrations leads to an effective magnetic field that drives coherent spin motion

Controlling functional properties by light is one of the grand goals in modern condensed matter physics and materials science. A new study now demonstrates how...

Im Focus: New 3-D wiring technique brings scalable quantum computers closer to reality

Researchers from the Institute for Quantum Computing (IQC) at the University of Waterloo led the development of a new extensible wiring technique capable of controlling superconducting quantum bits, representing a significant step towards to the realization of a scalable quantum computer.

"The quantum socket is a wiring method that uses three-dimensional wires based on spring-loaded pins to address individual qubits," said Jeremy Béjanin, a PhD...

Im Focus: Scientists develop a semiconductor nanocomposite material that moves in response to light

In a paper in Scientific Reports, a research team at Worcester Polytechnic Institute describes a novel light-activated phenomenon that could become the basis for applications as diverse as microscopic robotic grippers and more efficient solar cells.

A research team at Worcester Polytechnic Institute (WPI) has developed a revolutionary, light-activated semiconductor nanocomposite material that can be used...

Im Focus: Diamonds aren't forever: Sandia, Harvard team create first quantum computer bridge

By forcefully embedding two silicon atoms in a diamond matrix, Sandia researchers have demonstrated for the first time on a single chip all the components needed to create a quantum bridge to link quantum computers together.

"People have already built small quantum computers," says Sandia researcher Ryan Camacho. "Maybe the first useful one won't be a single giant quantum computer...

All Focus news of the innovation-report >>>



Event News

#IC2S2: When Social Science meets Computer Science - GESIS will host the IC2S2 conference 2017

14.10.2016 | Event News

Agricultural Trade Developments and Potentials in Central Asia and the South Caucasus

14.10.2016 | Event News

World Health Summit – Day Three: A Call to Action

12.10.2016 | Event News

Latest News

VDI presents International Bionic Award of the Schauenburg Foundation

26.10.2016 | Awards Funding

3-D-printed magnets

26.10.2016 | Power and Electrical Engineering

Advanced analysis of brain structure shape may track progression to Alzheimer's disease

26.10.2016 | Health and Medicine

More VideoLinks >>>