Effective and accurate demand forecasting is critical in all business sectors, including direct-to-consumer (D2C). D2C companies sell directly to consumers through an online channel. If you’re running a D2C business, you should be able to forecast demand for your products with reasonable accuracy.
The global smart and mobile supply chain solutions market size is estimated to be about US$ 18020 million by 2028, up from US$ 11920 million in 2021. This shows the rapid adoption of technology by businesses to put in place supply chain solutions.
Forecasting demand can be challenging for many reasons, including the lack of a consistent purchasing pattern in D2C businesses and an inability to see real-time data. To know more about forecasting demand for your e-commerce business, consider consulting verified online resources or scheduling a meeting with subject matter experts.
Let’s take a look at some challenges that you may face when doing this.
1. No Consistent Purchasing Pattern
Predicting demand is always challenging, but it becomes even more so for D2C businesses because, unlike traditional retail, there is no consistent purchasing pattern to be seen. The decisions to buy are made by the customer and not by a store clerk or salesperson.
This means that there is no data available on whether an item will sell in a certain area or not. For example, if you’re selling shoes offline and you know that people in New York City like your brand of shoe better than people in Los Angeles, then you can predict with some confidence how many pairs of shoes you’ll need for each city based on historical sales data from past seasons.
However, if customers are buying your product directly from your website without going through any middlemen, such as stores, then all this historical information may not be applicable anymore because purchases are being made directly from the manufacturer, i.e., you.
2. Lack of Real-Time Data
Another issue with demand forecasting in D2C businesses is the lack of real-time data. Data may not be available in real time. It might be missing or inaccurate, and it is often not available for all products. Data can also be difficult to interpret and find, and even more so when you are trying to understand it.
It happens the most when you, as a small business, outsource a lot of tasks to third-party vendor partners. The various stages of product or service delivery often don’t get updated or tracked for d2c players as efficiently as larger e-commerce conglomerates. Also, any small glitch in any part of this extended supply chain can cause a “bull-whip effect,” affecting other processes with more intensity.
Despite these challenges, if you can forecast your demand at 70% accuracy, according to Supply Chain Quarterly, your supply chain is quite resilient. Large businesses typically operate at 70-80% accuracy levels.
If you aim for a higher level of accuracy, you will need to implement advanced forecasting software, which will increase your investment in technology. This investment will pay dividends in the long term, so you may opt for it if you plan to expand in the next few years, bringing in additional profits to help justify the investment.
3. Absence of a Single Platform for the Entire Supply Chain
Businesses can use demand forecasting as a tool to optimize their supply chain processes, but many don’t have full insight into their stores, distribution centers, and warehouses.
Once you have a firm grasp of your demand forecasting data, it’s time to start using this information to improve supply chain performance.
The first step is to make sure you can get the necessary insight into your stores and distribution centers. The best way to do this is through an integrated system that integrates with existing systems or collects the data for you automatically.
If you have full visibility of inventory across all channels, you can optimize your supply chain processes with demand forecasting tools.
4. Economic Fluctuations
The volatile and changing nature of the world economy can play a huge part in the inability to forecast demand.
As a business owner, you know that the world economy is not static and can change quickly. The economy is also volatile, meaning it’s tough to get a good idea of what might happen in the future because things change so frequently.
Even if you could predict your customers’ behavior perfectly, it would be difficult for you to know how economic trends will affect their spending patterns. And finally, since economies are global, predicting how consumers will behave around the world becomes even more complicated because each country has its own unique set of factors that affect purchasing decisions.
D2C businesses face a unique set of challenges when it comes to demand forecasting. The lack of consistent purchasing patterns in these industries makes it difficult to predict what customers will buy and how much they will buy.
This is compounded by the fact that there is no real-time data often present, which can make it even harder to know what products are being sold and where they’re located at any given time.
International summits are taking into account various issues small and medium businesses face while negotiating operational challenges. Various studies are being led by the US government, in association with other countries, to enable knowledge sharing and implementation of AI and technology for growing businesses worldwide.
Businesses worldwide are adopting digital solutions today to solve their supply chain issues. Such solutions can help smoothen out many of the obstacles currently faced by them today.
We hope the challenges mentioned above resonate with you and you can take concrete steps to address them. Start by identifying basic tools and modeling techniques for demand forecasting so you can choose the right set of solutions for your business to implement.