Wednesday, September 3, 2014
Demand Forecasting - Direct Sales Example
In An Introduction to Supply Chain Management: A Global Supply Chain Support Perspective, Whitehead and Prater introduce four different methodologies of forecasting; qualitative, causal, time series, and simulation. Whitehead and Prater continue to mention that “most companies use a combination of these techniques to create their forecasts.”
(Prater & Whitehead, 2013) Although direct selling companies like
Tupperware parties and passion parties, have a different business model than
retail stores, like Ikea, direct selling companies still use a combination of
the forecasting methodology to predict sales.
Unlike a retail store, where a customer purchases goods based on what is
in stock, at a party, the host invites their friends to gather at a house and a
sales represented from the company comes to sell the products. The parties’ products are all central around
one idea. For instance Arbonne sells fitness items, Tupperware sells
containers, and Passion sells sex toys. The potential customers that attend
these parties are well informed of the goods available. Many of these parties supply an entire
evening of entertainment as games are played, laughs are heard, and food is
eaten. At the end of the night, the
customers are able to leave with their purchased products.
Since parties are planned within a week of time and it is not necessary for any customers to buy the products shown, how can a company forecast their sales? In the article Forecasting in Direct Selling Business: Tupperware’s Experience, Omar Campbell preaches that the sales only take place by the actions of the active force. Active force is the number of sale representatives who are selling products at a given party. The experience the active force provides for the customer directly affects the number of sales at the particular party. (Campbell, 2008)
Tupperware uses three different methodology to create their forecasting model. They use year-to-year comparison (time series), emotional response of the Sale Force (qualitative), and 120-day trend based on the TAP (algorithm they have created) formula (casual).
How the company determines the price of the product is the biggest
difference between Tupperware and a retail store like Ikea. Knowing certain months are more popular for
parties than other, Tupperware alter the price of their products to help
increase profit. For instance, Tupperware
offers “larger discounts but at a somewhat higher price” in September, which is
their busiest sales month. (Campbell, 2008)
On the other hand, Ikea, continually tries to reduce the cost of
producing the good, which directly relates to lowering the cost for the
consumer. Both of these ideologies play
an important role for the company while determine the projected sales. After understanding the forecasting for direct sales, I wonder how their model will change when other means of shopping, like on-line shopping, becomes more prominent in our society?
Campbell, O. (2008). Forecasting in Direct Selling Business: Tupperware's Experience. The Journal of Business Forecasting, 27(2), 18-19. Retrieved from http://search.proquest.com/docview/226923018?accountid=9902
Prater, E., & Whitehead, K. (2013). An Introduction to Supply Chain Mangement. Boston : Harvard Business Publishing.