Analyst Insight: For manufacturers, demands from their retail customers can be volatile and unpredictable, resulting in inventory swings, production disruptions and missed opportunities. The root cause of this problem is a lack of integration between the retailer and manufacturer. Manufacturers are attempting to predict what their retail customers need rather than directly connecting to a valid “model of the business,” in order to provide the most accurate prediction of what the retailer will buy. 

The problem isn’t a result of a lack of solutions. It’s built on a concept tested and proven for over 40 years: supplier scheduling. Central to systems like material requirements planning, supplier scheduling links a manufacturer’s planning system with its suppliers. The difficulty in applying this to retail has been building a practical “model of the business” for retailers. The biggest challenge is volume. Only recently have planning systems been capable of handling both the scale and retail-specific requirements in a practical, affordable way.

The most effective approach for manufacturers is to leverage the output of a retailer’s own planning system — the supplier schedule derived from store-level/DC-level distribution requirements planning (DRP). With an accurate supplier schedule, the manufacturer can use this schedule in place of a forecast, effectively eliminating guesswork, and replacing it with the retailer’s best prediction of what they will actually buy. 

For this to work reliably, the retailer’s system needs to be a true model of the business, and not just a forecasting and replenishment tool. A true model factors in real operational constraints that affect buying decisions, such as transportation needs, available storage space and cash flow or budget constraints. Because the DRP system accounts for these limitations, its output accurately reflects what the retailer will buy.

By incorporating real world constraints, the DRP model addresses retail volatility. It calculates separate baseline and promotion forecasts, scheduling initial distributions to ensure shelf displays are ready ahead of promotions and seasonal demand. 

While technology provides the infrastructure, the greatest improvements in demand planning accuracy are achieved through human judgment. 

For four decades, “best-in-class” performance has been driven by better assumptions, not more complex math or AI. Forecasting involves two fundamental concepts: the future will resemble the past, and the future will differ from the past. The latter depends on assumptions. Continuously applying and revising assumptions is what makes the biggest difference in demand planning accuracy. When manufacturers receive a DRP-derived supplier schedule, they’re essentially receiving the retailer’s core assumptions, drastically reducing their own guesswork.

With this in mind, it’s key for manufacturers to vet the quality of these schedules. Simply running planning software does not guarantee its accuracy. 

Furthermore, true partnership starts when both parties align culturally and strategically.

Retailers have insights such as on-hand balances and new store openings, while manufacturers see the broader picture and overall product trends across many different retailers. Acknowledging that both parties involved have key insights that the other needs allows the shift towards a more collaborative partnership that encourages more information sharing. 

Resource Link: https://www.oliverwight-americas.com/

Outlook: Better demand planning is achieved when manufacturers and retailers embrace a collaborative culture, and leverage systems that function as a true model of the business. By validating retailer-derived supplier schedules, manufacturers can replace internal guesswork with reliable demand signals grounded in the retailer’s operational reality, transforming a decades-old problem into a powerful competitive advantage.