Accurate demand planning in food and beverages has to be one of the trickiest challenges in global supply chains to get right. Many variables and long time lines make achieving precise demand planning one of the holy grail aims for supply chain and operations management specialists.
Forecasting sales in the fast-moving consumer goods (FMCG) industry is absolutely essential for strategic planning and decision-making. By accurately predicting sales trends, companies can fine-tune their production, distribution, and marketing efforts to meet consumer demand effectively. This process is really vital in domestic sales but becomes even more critical in international sales where there are more variables and shelf lives are critical.
Let’s face it, nobody these days is happy to be faced by empty shelves regardless of the product or season. Yet lots of companies do their export demand planning on the basis of gut feeling (or maybe they’re using a crystal ball? My crystal ball below has a wise owl incorporated into it for good measure.)
Table of Contents
Theoretical Methods for achieving precise demand planning
Time-Series Forecasting
Time-series forecasting is a popular method used to predict future sales based on historical data patterns. This technique leverages mathematical models to identify:
- Trends
- Seasonal variations
- Any other relevant patterns in the data
By extrapolating these patterns into the future, FMCG companies can make more accurate sales predictions.
One key advantage of time-series forecasting is its ability to capture the cyclical nature of consumer behaviour. By analysing past sales data over specific time intervals, you can anticipate seasonal fluctuations, promotional effects, and other recurring patterns that influence your sales performance. How much does Christmas influence your chocolate sales or a heatwave push your icecream rotation?
This method of course only takes your own actions into account, so if your competitor runs a big campaign at the same time that you have a promotion, your predictions can be a long way off. It can be quite a simplistic approach, but better than nothing when you are quite new in a market.
Regression Analysis Method
Regression analysis is another powerful tool for more accurate planning in food and beverage. It involves analysing the relationship between various factors, such as:
- Price
- Advertising expenditure
- Sales volume
By quantifying these relationships, FMCG companies can develop regression models that predict sales based on the values of these factors.
On top of that, regression analysis lets you to assess the impact of different variables on your sales outcomes. You can identify significant predictors of sales and refine your forecasting models to improve accuracy and reliability.
If you spend x on an advertising campaign and offer price offs of 15% at the same time, by how much do your sales increase?
Again though, this is generally only taking your own actions into account and not whether your main competitor is running a TV campaign and 20% price off in a different key account.
Qualitative Forecasting Techniques
Besides relying solely on quantitative methods, FMCG companies often employ qualitative forecasting techniques to complement their sales predictions. Qualitative techniques provide valuable insights into consumer behaviour and preferences. These techniques include:
- Expert opinions
- Market surveys
- Customer feedback
If you integrate this qualitative data with quantitative models, you can improve your supply chain and operations management.
Qualitative forecasting techniques also allow you to adapt to changing market dynamics and consumer preferences. Gathering qualitative data from focus groups, social media monitoring, and industry experts allows you to gain a deeper understanding of emerging trends and consumer sentiment, so you can tweak your sales forecasts accordingly.
Theory vs Practice
These models are all well and good in theory, but they also present challenges. (Of course this is true for any model). The challenges are significant in domestic markets, but become even more critical the further away you get from your home jurisdiction or the more volatile the market that you are working in.
Just think about these possible scenarios:
- Your ingredients have to be specially sourced with lead times of up to 5 months. The new client in Brazil calls you and tells you he needs an extra container this month because his sales are “exploding”.
- The Turkish government introduces a new law meaning that all imports have to be analysed in 1 of 2 certified laboratories prior to import. You have stock in your warehouse that needs to be shipped to make space for other clients, but you don’t want products standing in a truck somewhere at a border.
- Your distributor in Poland calls you and tells you that Kaufland, who make up 20% of his sales, have delisted your products.
These are all things which I’ve seen happen and where you need to have strong systems in place in order to avoid creating overstocking or out of stock situations in the medium term. The best demand forecasting tools are not going to save you in such situations – you will have to do damage control to prevent your stocks getting out of balance.
Considerations for more accurate demand planning in food and beverage
If we’re looking at really the full chain of your business, the idea of achieving precise demand planning starts to look more and more like a mirage in the distance – something you’ll strive for, but probably never reach. You probably want to have a couple of different kinds of demand planning depending on the purpose – an annual forecast for raw material purchasing decisions, a 3-5 year estimate for more strategic planning such as around production capacity or new suppliers and then the more granular regular rolling demand planning. You should be aware though that with a lot of SKUs and all the variables involved in FMCG then it’s complicated to get an accurate forecast.
In more investment type industries then working with a classical funnel model can give you a pretty accurate forecast. If you sell turbines for wind farms, then you can find the data about how many projects are running in a country, and from there evaluate your realistic chances on each one based on your quality criteria.
In FMCG, things are not so straightforward, although of course data is at the basis of any decisions.
Be clear and realistic in your expectations
Like I said, it’s not easy to get a realistic forecast for your export markets, especially when you’re just starting out, and the more SKUs you’re selling in a market, the more complex the calculations become.
I mean, how easy is it to accurately predict the sales developments in your home market, the one you know the best?
Let’s say you are the market leader in a certain kind of drink in your home market. You’re listed in pretty much all major outlets and you have a strong market share after 40 years building your presence in the market. In a Western European country like France or Germany with limited market growth in your segment then you can probably do a great job of the forecasting.
It would be much harder though in a new overseas market where you don’t yet have such in depth insights and where you’re not yet listed in all the relevant channels.
Accept that this is going to be a learning curve, and that over time your process and data will become more accurate.
Involve as many of the stakeholders as possible
It always amazes me how many brands don’t involve any of their external partners in the planning process other than a quick call.
You partner with a distributor in most of your export markets to gain the benefit of their expertise, so make sure that you also pull them into the demand planning process. In certain markets like say Brazil or India or China, you might want to go even deeper into the channel and involve any regional sub-distributors.
Who knows the markets better than they do? You need to be having constant feedback loops with your local partners in order to understand the market dynamics as best you can and react as fast as possible.
Define clear parameters with your distribution partners
How often do you need your rolling forecasts from your partners?
What safety stock do they need to always have on stock/ in transit?
What lead time needs to be considered?
(Do they tend to always underestimate or overestimate their sales development? If yes, you need to adjust your calculations to take account of that.)
Plan is plan, but real is real
Yeah I know, that’s obvious. But you do have to expect there to be discrepancies and when something unplanned for occurs be it an unexpected listing or a retrospectively applied law change, you need to be prepared to collaborate closely with your overseas distributors to find solutions.
How could the planning process look?
If you’re aiming for more precise demand planning then you probably can’t just rely on a very simplistic “we’ll sell 5% more than last September, and 2% more than in August” type approach. This needs to be granular and also done regularly.
Rolling Forecasting: A Dynamic Approach
If you’re operating in diverse export markets, a static forecasting approach simply won’t cut it. Instead, you need to adopt a rolling forecasting method. This involves continuously updating forecasts as new data becomes available, typically on a monthly or quarterly basis. Rolling forecasts are more flexible and responsive to market changes, whether due to changing consumer preferences, economic conditions, or political events. Some things you might be able to plan for and others are unexpected. This approach ensures that forecasts remain relevant and accurate, helping all the stakeholders from importers back to producers and raw material suppliers to make informed decisions about production, shipping, and inventory management.
Inventory Management or “How can you balance stock levels and shelf life?”
Managing inventory across multiple warehouses, often in different countries, requires a careful balance. When forecasting demand, you must consider the existing stocks in each warehouse and, crucially, the shelf lives of those products. Food and beverage items are perishable, and the risk of products expiring in the warehouse must be minimised.
An accurate forecast will help maintain an optimal level of inventory, ensuring that there is neither too much stock (leading to waste) nor too little (leading to stockouts). The goal is to keep the inventory turnover rate high while ensuring the availability of products. You can calculate the “reach” (in weeks or months) of any of the steps in your supply chain by using either a historic view (dividing the number on stock by the average sales of the past 3 months) or a more forward and complex approach. Here you would need to consider your expected sales (eg for the next 3 months) including any seasonal variations, new listings, promotions or product launches.
Accounting for Customs and Import Procedures
Customs and import procedures can significantly affect your lead times, so it’s vital to incorporate them into your forecasting process. Depending on the destination market, these procedures can take anywhere from a few days to several weeks. It’s important to factor in time needed for customs clearance, including potential delays, to avoid disruptions in the supply chain. Your importers should maintain a close relationship with their logistics partners to ensure they’re aware of any changes in regulations or processing times that could impact their forecasts.
The time needed for customs clearance or other import procedures (eg laboratory analyses) needs to be factored into your safety stock, or rather that of your importer.
Shipping Times & Challenges in Global Supply Chains
Shipping times obviously vary greatly depending on the mode of transport and the distance between production facilities and end markets. Ocean freight, while cost-effective, can take several weeks, while air freight is faster but a lot more expensive. Forecasts must account for the time needed for shipping and include buffers for potential delays, such as port congestion, adverse weather, seasonal peaks (try getting a temperature controlled container on the run up to Christmas) or geopolitical issues. Using a rolling forecast allows for adjustments based on real-time shipping data, which helps keep supply chains running more smoothly.
As with the data around import procedures and customs, you and your importer need to factor this time into the safety stock and be clear on which warehouse that will be held in.
Integrate Planned Promotions, New Listings & New Product Launches
Promotional activities can significantly impact demand, often leading to spikes in sales. Similarly, planned new listings in retail outlets can result in increased orders from those markets. Both of these factors must be integrated into your demand forecasts. Importers should provide detailed plans for upcoming promotions and new listings, including the timing and expected uplift in sales. This will allow for an accurate adjustment of production and shipping schedules, ensuring that enough stock is available to meet the increased demand without overstretching your supply chain.
This is easier said than done, especially in markets where you are just starting out. It’s not too critical if you have just one new SKU to be listed in (unless your full range is say 3 items), although of course any advertising campaigns with launch dates have to be considered. But if you are looking to get a listing in a whole new channel, such as a major national retailer, then that can make a huge difference when you make that initial stocking delivery. (Your distributor also has to be careful about follow up months in the planning as many products will not need to be restocked in the month after listing whilst others will have flown off the shelves much faster than anticipated)
New product launches bring an additional layer of complexity to demand forecasting. With no historical data to rely on, you have to use a combination of market research, consumer insights, and data from similar products to estimate demand. It’s critical to build scenarios for best, worst, and most likely cases to ensure that your supply chain can handle the variability. Overestimating demand could lead to costly overstocks, while underestimating it could result in missed sales opportunities. A phased launch approach—releasing the product in one or two markets first—can also help gauge demand before a wider rollout.
Calculating Safety Stock
Safety stock is your insurance policy against forecast inaccuracies, unexpected demand surges, or supply chain disruptions. The amount of safety stock required will depend on the variability of demand and lead times as well as the total shelf life of your product and the “minimum remaining shelf life” that retail will accept in that market.
In export markets, where both of these factors can be highly unpredictable, it’s wise to maintain a higher level of safety stock than you might for domestic operations. However, this needs to be balanced against the cost of holding inventory, particularly for perishable items. A good practice is to regularly review safety stock levels as part of your rolling forecast process, adjusting them based on the latest data.
As I’ve mentioned above, you also need to account for the supply chain between finishing production and product reaching the stores. For example:
- post production quality control in external labs 2 weeks
- preparation for shipment 1-2 weeks (perhaps it can run parallel to the first point, but I’d count it consecutively)
- shipment time from your warehouse to export market (takes a long time for seafreight from Europe to Asia or Australia) eg. 6 weeks
- import procedures and customs 1-3 weeks
- domestic distribution 1 week
You can see you have a time span here of 3 months – without any puffer. This is really just a very primitive calculation without going into the nuance of detail that a supply chain expert would recommend. If you are the area sales manager for a region, you have to understand the basics of this calculation, enough to explain to your partners, even if it’s the supply chain specialist who deals with the details.
This is very much a situation where you need to be extremely careful to avoid calculating in a puffer at each stage resulting in bloated stock levels. This is my overview as a sales and marketing specialist who’s worked in country management – not the explanation for a supply chain specialist.
Aligning Operations with Demand for the Production and Order Process
Once the demand forecast is in place, the next step is to align your production and order process accordingly.
- Production Planning: Forecasts should drive production schedules, ensuring that the right quantities are produced at the right time. This requires close collaboration between the sales, marketing, and production teams, especially when launching new products or during peak promotional periods. It’s really critical with products that have a short total shelf life because you simply have less margin for error.
For you as the person responsible for sales, you need to keep an eye on this as nobody else is as invested in the success of your partners. If they are missing the peanut butter oat cookie for a big event on 1st November then you need to be in close contact with the production and supply chain teams to make sure stock arrives there on time. - Order Process: Orders from international markets should be placed well in advance, considering the lead times for production, shipping, and customs clearance. Importers and distributors should be engaged early in the process to ensure they’re prepared to receive and distribute the products on time.
- Cash Flow: There are companies who produce and hold stock to cover orders from their international markets and those who “produce to order”. Whichever way you work, you need to be conscious that the process is potentially heavy on the cash flow of either you the brand owner or the importer and that this can have knock on consequences.
Achieving precise demand planning for production forecasting in food and beverage is a bit of a pipedream
I’ve been surprised over the summer by hearing from clients that it had never occurred to them to involve their distributors with producing a rolling planning.
On the one hand, they were asking for a wishy washy forecast (so requesting work and thought from the importer) but there was no accountability, and it also wasn’t systematised so that these numbers could be used as a basis for future productions. The client forecast was taken as an indicator for the export area manager to make their forecast, which is all well and good, but means there’s no accountability with the distributor.
Of course, if your lead times are short enough to produce everything fresh to order that’s PERHAPS not so critical, but surely it makes sense to involve as many stakeholders as possible in this process??
You work with a distributor because they know the market best, so you expect them to know:
– any new listings that are on the horizon
– the exact state of their own stock (incl. shelf lives)
– exact timings of planned promotions
Stockouts in export markets shouldn’t be something you expect every so often but only in exceptional circumstances… Overstocking is horrible too as you don’t want to ruin your brand equity with dumping promos…
You might have to cobble an excel file together, but it is worth involving your partners in this production planning demand process.
Will it be a learning curve? Absolutely! (For both sides)
Will you need to check things over and adjust for your own stock levels? Probably, at least if you produce to stock.
Will it be worth it in the long term? Definitely.
You’ll be grateful for the additional layer of data input and accountability that you have with your partners.
And if anyone has any great forecasting tools that are designed to be used in the FMCG business with external stakeholders such as retail or distributors, please let me know. I’d love some recommendations here. Most companies I know are working with their ERP for the production end, but then tacking excel onto the distributor facing end 😬.
Thinking that working with a consultant would accelerate your international expansion?
If you’d like to learn more about working with me for support on your internationalisation projects or personal export knowledge, you can book a 30 minute international clarity call here.
If you haven’t already signed up for my free e-book about how to select which international market to enter next, you can do so here, or using the form below.
If you enjoyed this content please share it on social media or recommend it to your network.
Pin this post for later!
If you are interested in working with distribution partners in your export markets, you might find these posts also interesting:
- Define Your Ideal Distributor Company Profile to Succeed Internationally
- Carrying out an Annual Distributor Performance Review
- Are you a great supplier?
- Factors to Consider when Deciding on Payment Terms
- Advantages of Working with a Distributor in Export Markets
- Making the Best First Impression in International Business Meetings
- Finding the Perfect Partner: Distributor Dating in a Hybrid World
- Store Checks in International Sales: a Retail Audit Example
- How to Make an Export Plan Part 1
- How to Make an Export Plan Part 2
- Starting to Think About Your International Distribution Agreement
- An International Distribution Agreement Checklist Part 1
- A Distributor Contracts Checklist Part 2
- The Legal Requirements in an International Contract 3
- Types of International Distribution Channels
- International After Sales Service
- 55+ Questions to Ask When You’re Looking for International Distributors
- International Customer Service in Korea: Dealing with Media Crises
- Why an Integrated Business Planning Framework could Improve your Exports
- Export Pricing Strategy in International Trade as a Key Factor of Product Market Fit
- Why and How should you Enhance Distributor Loyalty in Export Markets?
Kathryn firmly believes that business is done between people, and therefore places her focus on building strong relationships that form a solid foundation for doing business.
When she's not travelling around the world, Kathryn enjoys playing clarinet in her town's wind orchestra or sharing her love of the outdoors with her Scout group.