Forecasting – Apparel Industry
Enterprise resource planning, or ERP, became popular among larger manufacturers in the mid- to late-1990s, with companies around the world investing approximately $300 billion in the systems during the decade. Enterprise resource planning involves using technology to coordinate the activities that take place in different areas of your business. In other words, ERP software facilitates the sharing of information between departments so that your business runs more efficiently and better decisions can be made at all levels of your organization.
Changes in the Apparel Industry
When ERP technology was first introduced, interest in it was largely limited to large corporations because of the cost involved. Over time, ERP technology has become more affordable and the systems have become easier to implement, which has made them increasingly attractive to businesses of all sizes, including organizations with limited budgets.
In a report entitled, “A Guide for a Successful ERP Strategy in the Midmarket: Selection, Services, and Integration,” Aberdeen Group estimates that 84 percent of midsize businesses have implemented ERP software in their operations. While an increasing number of companies have an ERP system, Murray Mitchell, Global Leader, General Business, Global Business Services at IBM doesn’t think enough businesses use their system to its full potential. According to Mitchell, companies that view the implementation of an ERP system as an opportunity to transform their operations instead of a simple change in technology are better prepared to get the most out of their systems.
Just as an ERP system can be useful in other industries, the technology can be particularly beneficial to businesses in the fast-changing apparel industry. One area in which an ERP system can be quite useful is helping you figure out how to forecast demand in the apparel industry.
Over the past 20 years, the apparel industry has undergone significant changes that have made it more difficult for many businesses to accurately forecast demand for their products. For people outside of the fashion industry, there are typically four seasons per year: summer, fall, winter, and spring. When it comes to the apparel business, however, many industry insiders typically created a retail calendar that includes more seasons in recent years. For Zara, a fashion retailer that sells textiles for men, women and children, a single year may have as many as 20 distinct seasons.
In addition to having more, and shorter, selling seasons, the apparel industry has undergone other meaningful changes over the past two decades, which include:
- Outsourcing: In recent years, many companies in the apparel industry moved their manufacturing offshore to locations with lower labor costs to reduce their production costs.
- Longer Lead Times: Much manufacturing is done elsewhere, so retailers now need longer lead times to acquire the goods they’re going to sell.
- Technology: ERP systems enable retailers to run their operations more efficiently, but the systems also allow them to work better with their suppliers because the technology can be integrated with the systems their vendors use. If you decide to extend you ERP system to your suppliers with technology such as a Vendor Portal system, suppliers can review your purchase orders online and can provide up to date status on P/O lines. Suppliers can create also ASN’s (Advance Shipment Notice) and they are immediately available in the ERP system, and upon completion of the ASN carton labels can be created automatically or via the carton label program both with SSCC18 numbers all improving efficiencies for both the supplier and your company.
In addition to facilitating communication between your company’s departments and your business and its vendors, ERP software enables you to improve the way you interact with your customers. ERP technology tracks the products in your inventory from receiving through delivery to your clients in real-time. You can respond to inquiries about orders quickly and accurately and increase the confidence consumers have in your company.
Technological advances clearly changed the way many organizations in the apparel industry conduct business, and it also changed the way people shop for goods. Over the past two decades, e-commerce has become increasingly popular, especially for members of younger generations, such as Millennials. Technology has given consumers a vast number of online stores to choose from, and it has also given them instantaneous access to new fashion trends and brands. Shoppers are now more fashion-conscious, which has altered their requirements when making purchasing decisions.
- Less Mass Production: To better satisfy consumers’ changing requirements and to stay current with the additional fashion seasons, many companies moved away from mass producing apparel over the past two decades. Instead of mass producing their products, many companies focus on developing new, fresh clothing that shoppers will find attractive.
How to Forecast Supply Chain in Apparel
The changes that have taken place over the past 20 years have made forecasting in the apparel industry more difficult. The consumer demand in the industry itself involves some intrinsic attributes that have always made forecasting accurately a challenge. When it comes to apparel, many consumers buy goods based on an impulse, for instance. Shoppers often wait until the point of purchase to decide that they’re going to purchase a particular item. It’s critical to forecast your sales and inventory needs as accurately as possible, so you won’t miss sales due to a lack of product supply.
Consumer demand in the apparel industry also has the following characteristics:
- High Volatility: Demand for apparel is highly volatile, which stems from numerous factors, including the weather, pop culture, sports figures, and the economy, among many additional influences. If your suppliers fail to deliver goods in a timely manner, their unreliability can also create volatility in your supply chain.
- Low Predictability: Given the volatility inherent in the industry’s consumer demand, it can be nearly impossible to predict how many units you’ll sell in a given period of time. Even if you can forecast the total number of sales you expect to record over a certain time period, it can be difficult to accurately forecast the number of each item included in your inventory that you will actually sell. While you may expect to sell 10,000 shirts in January, for example, you may not be able to accurately predict which of the 100 styles of shirts you sell will be your biggest seller in that month.
- More Variety: As more and more options have been made available to consumers, the demand for apparel products has become increasingly fragmented through the years. Consumers are more aware of their options, and they’re more concerned about the quality of the goods they’re buying because they have plenty of choices.
It’s challenging to forecast the future demand for your apparel products, but it’s not impossible. Demand forecasting involves using the information you have at your disposal to determine the amount of product you’re going to need to satisfy your customers’ needs and when you’ll need to have it in stock. It’s even more difficult in the apparel industry because new products are constantly introduced. If you introduce new items every year or fashion season, you may not have the historical data necessary to figure out how much of a new product you should have in your inventory.
If you have an ERP system, you can use the sales history of similar items to help you forecast the demand for a new item. You can also use your system to track the number of new products you sell in the first few weeks or days that the item is offered, and use that data to figure out how many more units you’ll need to meet demand.
Sales forecasting also attempts to determine the future demand for your products within a given set of circumstances. To create an accurate sales forecast, you’ll typically need three types of information:
- Internal Data: You need data about your historical sales volume, as well as information about your current marketing promotions and advertising activities.
- Future Information: You also need to be familiar with your company’s marketing plans for the future and how your products will be distributed as you move forward.
- External Data: You need to be knowledgeable about the state of the market and your suppliers’ access to the raw materials they need to manufacture the goods you sell. You also need to be aware of the overall political, economic and cultural environment in which you compete.
The particular forecasting method you’ll use will depend on various factors, including the type of information that’s available to you. No matter which technique you decide to use, you’ll need to measure your forecast’s accuracy so you can more finely tune your future forecasts. An inaccurate sales forecast can have expensive consequences, including missed sales opportunities caused by product outages and an overburden of unsalable inventory.
In simple terms, forecast accuracy is the difference between the sales volume you predicted and the sales numbers you actually record. While your overall demand forecast may be fairly accurate, studies have shown that the forecasts for individual SKUs are often off by as much as 35-50 percent and that they can be off by as much as 100 percent in some cases. Only looking at the difference between your forecasted and actual sales is normally not enough to determine the accuracy of your forecasts. Positive and negative errors typically offset one another, which generally makes a forecast appear more accurate than it really is.
For this reason, many businesses in the apparel industry use mean absolute percentage error, or MAPE, to measure the accuracy of their demand forecasts. MAPE is calculated by dividing the absolute value of the difference between your forecasted and actual sales, dividing the result by your actual sales, and multiplying the result by 100.
Demand Forecasting With FDM4’s Apparel ERP
In business for nearly 40 years, FDM4 has worked with apparel businesses for two decades to help them streamline their operations and improve their demand forecasting. Our ERP systems have a Forecasting Module that simplifies the forecasting process by making critical information available to you with a few clicks. Our Forecasting Module uses historical sales data to identify sales trends for different styles and even down to the color and size level. Based on this information, sales expectations, and the amount of inventory you want to carry, our Forecasting Module generates a forecast for each of the items in your product mix.
Over time, our business has become the largest software vendor in the blank apparel, imprintable industry. We’ve become an industry leader because we know the apparel industry, and we have the technology solutions that can help your business grow.
Our ERP solutions can help you improve your business in many ways. From facilitating communication between departments, to giving you the information you need to communicate with your clients and vendors accurately, to tracking your inventory, to providing data for your sales forecasts, and more, our ERP systems can do it all. With so many capabilities, our software solutions are designed to help you transform your business.
If you want to learn how one of our scalable ERP systems can help you grow your business, contact FDM4 today. Our systems are available as licensed models or as a hosted SaaS solution. With our cutting-edge, browser-based ERP technology, you can position your business for even greater success. Give us a call or contact us online to learn more today.