How Toy Store boosted revenue with demand forecasting software

Toy retail is a very challenging business. The new generation of younger shoppers is more demanding than ever and when they enter a toy store they demand emotions, fun, and joy. If you want to sell toys successfully you require a store where customers love to patronize, somewhere they enjoy spending quality time, a place with beautiful interactive displays full of colorful products.

In order to compete in an increasingly online market, you have to keep up with ever-changing customer appetites. Parents want fast shipping for the toys they have chosen for their little ones, they need 100% product availability, and they need reasonable prices.

To be competitive, businesses have to constantly adapt to new approaches and innovative strategies. Retail giants no longer count their inventory in spreadsheets or rely on constant demand or inaccurate forecasts.

Toy businesses need a highly efficient supply chain, quick real-time response to customer moods, smart replenishment and reordering, and efficient warehouse functioning. They need high-quality demand planning and forecasting software.

Demand Forecasting Software and Inventory Management

Being an ambitious retailer, Toy House decided to modernize and revolutionize the way its inventory system works and integrated an automated demand forecasting software into its business processes.

Since opening its first booth-like shop, the company used the “push” inventory model, and based all order and reorder volumes on projected customer demand. The main drawback of the push strategy is a high risk of forecast error, which could lead to an imbalance between real demand and supply, influencing the company’s financial performance.

Four years ago the company decided to level up its inventory management, and take control of its reordering and supply chain operations. Toy House carefully studied the market and decided to use Leafio, a Theory-of-Constraints-based software.

This new strategy was based on “pull” inventory management - a model based on real customer demand. The company opened a functional Distribution Centre (DC) which became the main regulator of the whole supply chain, serving as a point of contact and transfer for all orders and inventory deliveries between online and offline sales locations.

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Toy House managed to cut its excess inventory level from 44.6% to 32.6% and dramatically increased its turnover rate, reducing logistics and delivery costs. In 2018 - 2019 the company increased its automatically reordered goods rate from 72.1% to 96.2%. This entire process is now managed by just two people.

When warehouse, distribution center, and delivery and store supply operations have been synchronized with the help of an intelligent inventory management tool, the company could keep its delivery costs low, its customers happy and its staff productive.

What are the key elements of this successful inventory strategy?

1. Dynamic safety stock management

Every retail business can experience unexpected demand fluctuations, acts of god, delayed deliveries, etc. Safety stock allows business to be confident about its future sales, deliveries and shelves. By integrating a new demand forecasting software Toy House was able to manage its safety buffer level in real-time.

The system automatically determines the necessary quantities of safety stock across all offline and online locations and manages safety buffer levels which can change according to current demand and order frequency.

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2. Keeping shelves stocked and well presented

Toy stores are a world of emotions, and they need to appear engaging and attractive to catch children's (and parents’) eyes quickly. Disorganized, messy, or empty shelves will never convince people to buy.

Intelligent inventory management and smart merchandising are the keys to beautifully decorated and well-stocked shelves. Toy House’s investment helped them to keep their shelves stocked by balancing the company’s safety buffer, promotion goods and extra stock set aside for emergencies.

3. Smart reporting

One of the great benefits of demand forecasting is a highly customizable database of analytical reports which are available to system users and can be generated in seconds. The reports reflect ABC(D) analysis (categorizing products depending on their consumption value), supplier status as well as daily, weekly and monthly performance indicators dynamics including turnover, sales, lost sales, excess stock, etc.

4. Managing extra and promotional inventory

Keeping control of excess inventory is one of the most important elements of inventory strategy. Holding too much inventory is costly and can lead to lost sales.

There are plenty of inventory techniques that help to monitor and control extra stock, however, the best strategy is to combine and mix them depending on a company’s individual needs and goals. Leafio offered Toy House a perfect customized combination of the best widely-used techniques taking demand planning and forecasting software into account. The system automatically defines and calculates the level of extra (excess) stock and proposes several rotation options (for example, between stores to compensate inventory gaps or potential shortages).

The same smart principle is applied to promotion management. With the help of its inventory software, Toy House can get revised promotion forecasts based on previous promotions data, allowing the system to automatically compare and analyze statistics to adjust its orders for new promotion periods.