Monday, September 16, 2013

Target wrongly estimates demand forecast

This blog is based on the article that I had come across relating to weekly readings, inventory management and demand forecasting.

In the year 2011, Target decided to launch Missoni products at their store and online. Missoni, an Italian fashion brand is well known for its knitwear design and it is a much sought after brand among customers. But, when Target released Missoni’s products online and in-store, the demand for the product immediately skyrocketed and Target was left with very limited inventory to tackle this sudden rise in demand for Missoni products.

The reason for this debacle is very simple: Target did not forecast demand well enough for Missoni products. As Target couldn't meet the demand, scalpers made use of this opportunity of by selling products at a much higher rate. In one such case, a Missoni bicycle priced at $399 was sold on eBay at a ‘buy it now’ price of $1600. Another case was that an enterprising seller was willing to pay $31,000 for a pair of Missoni Venetian Rain boots, size 10.The second largest discount retailer in the United States, faced strong criticism for failing to fulfill orders it accepted online. Some cases of severs crashing were also reported. Customers even had the tracking number of their packages when UPS did not have any record of such packages. 

The problems faced by Target were due to miscalculation of forecasting demand by a great margin and poor execution of their product launch. Target could have had some of the Missoni products in excess as a buffer in their storage to better tackle this situation and optimize their profits. Even though errors in demand forecasting is inherent and in very rare cases could one make an exact prediction of demand for their products, Target could have done a better job in minimizing errors by getting close to customers and estimate the demand for Missoni products. Being close to consumers rather being farther up the supply chain could have eliminated the large distortion of demand related information it had received. Another method the demand forecasters could have done is to compare how other big retailers such as Walmart have handled such a situation and steps could have been taken in a similar manner to avoid this problem.

Due to the Missoni launch fiasco, Target would have difficulties wooing other big designers to their product line. What measures could Target undertake to estimate the demand for a product they are about to launch (for instance: other big designers or any other much sought after brands) to their product lineup?


No comments:

Post a Comment

Note: Only a member of this blog may post a comment.