Tesco has been working on sophisticated demand planning techniques, including advanced weather forecasting and gap scanning, to clamp down on availability problems.
Bruno Monteyne, the retailer's supply chain systems development director, said it was crucial to get a grip on weather-related fluctuation in demand for certain types of food and drink. He was speaking at grocery think tank IGD's Availability & Demand Planning 2008 conference in London. "Sales on individual products can fluctuate by up to 300% day-to-day. Getting it wrong could mean you lose £1-2M straight away," he said.
A Tesco project measuring demand for ready-washed salad in Extra stores in south east England, for example, had revealed that sales rose by up to 19% as temperatures climbed from 20 to 25°C.
But the work showed it wasn't just temperature that was a deciding factor. Cooler days with a high number of sunshine hours also boosted sales, with significant growth taking place at eight or more hours. Sales of broccoli worked differently, said Monteyne. "As the temperature goes up, sales go down."
But Tesco was surpassing this level of detail to examine how temperature and sunshine hours influenced demand on different days of the week, in different regions and for different store formats, he said. In Scotland, for example, where consumers were used to cooler temperatures in summer, a surge in demand for some products could be triggered at a lower temperature than in the south of England. The retailer was now working to build weather modelling into automated demand forecasting for different regions, Monteyne added. It was also looking to work with suppliers to develop its own systems for more accurate demand forecasting for promotions, he said. "Historically we have not been very good at promotions; we have tended to rely on suppliers for information."
Further research on availability included scanning gaps on shelves to determine which products were posing problems, said Monteyne. However, he said Tesco wanted to link this to regular satisfaction surveys. "Customer satisfaction is the latest thing here. We want to know whether every gap matters as much [as another] to the customer."
One of the biggest difficulties in implementing effective demand forecasting was securing the personnel and IT resources capable of handling the level of detail and complexity Tesco required, said Monteyne.