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"With the recession, all bets are off. Traditional supply chain processes that rely on historic orders can be thrown out the window." -- Lora Cecere, Vice President, Value Chain Services, AMR Research

It comes as no surprise that consumer spending patterns have changed as cost-conscious consumers react to continued financial insecurity. As a result, consumer products (CP) companies that rely on historical sales patterns as the basis for forecasting are experiencing increased forecast error because consumers are behaving in new ways.

There are many factors that feed into these trends. For example, analysts predict that fewer jobs, falling home values and the biggest loss of household wealth on record may limit consumers' ability to spend for years to come. Consumers are turning to discount retailers and club stores in greater numbers and have become more aggressive about making purchases on sale.

Former loyal consumers are beginning to trade down to private label and value brands to save money. According to a survey conducted by Digital Research, Inc., about 40 percent of grocery shoppers report trading down to store brands since the recession hit, and just 29 percent say that they prefer name brands even if they cost more or the same as store brands.

Forecast accuracy is declining and, at the same time, it has become more critical as financial pressures mount: sales are declining, market share is eroding and costs of materials have increased. According to the United States Census Bureau, total retail and food services sales for the May through July 2009 period were down 9.0 percent from the same period a year ago. Retail trade sales were 9.4 percent below last year.

Now more than ever, historic demand is not a good predictor of future demand. With traditional supply chain processes it takes seven to 14 days for shelf takeaway to translate to demand in the form of a retail order to a supplier. A week is just too long to sense demand patterns when consumer preferences are constantly changing and retailers are pushing to carry less inventory. Manufacturers need to invest in demand sensing to improve their ability to meet consumer preferences at the store shelf.


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