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Should FMCG companies switch from primary to secondary sales for demand predictions?
Many FMCG companies continue to predict primary sales for working out various supply chain actions. They don’t see the benefits of switching to secondary sales prediction. On the other hand, supply chain theories recommend that we should predict demand as close to consumers as possible. Does it really make a difference?
Let’s consider a simple example. Assume that the secondary sales are steady at 100 units a month. Monthly predictions of secondary sales will continue to be at the same level of 100 units a month in the absence of demand shaping activities.
We know that companies try to push extra stocks to distributors at the month end, which gets further accentuated at quarter and year ends. Suppose the company sells 110 units to its distributors in the last month of the quarter. Various time series forecasting models will predict next month’s sales between 101 and 121 units.
If we predict secondary sales and peg it at 100 units, primary sales for the next month would work out to only 90 units! The error introduced by primary sales prediction is completely avoidable if we switch to secondary sales prediction. A major reason for inventory mismatch can be eliminated by the simple process change.
Would you like to make the switch now?