The Truth about True Demand (And Why You Should Care)

The Truth about True Demand (And Why You Should Care)

A recent National Retail Federation (NRF) press release quoted NRF Vice President for Supply Chain and Customs Policy Jonathan Gold as saying that, “[NRF is] forecasting significant sales growth this year and that means retailers will have to import more merchandise to meet consumer demand.”

I couldn’t agree more. Importing goods is often necessary to accommodate a surge in consumer spending. What I wonder is, though; are retailers ready to accommodate those imports? And the cost/ risk associated with it?

Domestic supply chains are complicated, but suddenly needing more imports adds a whole other level of complexity. You need to be sure your now-global supply chain and the logistics operations that connect it are fully optimized and aligned with your demand and the added challenges of importation.

How? Well, it starts with identifying and understanding true demand. True demand is demand based on date, time, and geolocation (the location to which the demand should be attributed).

Traditionally, assessing demand was as simple as looking at historical data and making a prediction based on past trends. Unfortunately, this is no longer relevant. In the past, this was enough, given that physical, in-store inventories were the primary metric of demand. But today, with the rise of buy online, pick up in-store (BOPUS), ship from store, and home shipping, there are more factors that affect demand than ever before.

It’s not enough to know where somebody bought a given product; you also need to know where the buyer is located and where the product is being consumed. This information can be answered by geolocation — the hallmark of true demand and the key to understanding demand enough to optimize your supply chains. Here are a few scenarios that showcase the importance of true demand:

Say I order a pair of ABC-brand shoes to be shipped to my house in Boston. In this case, the geolocation is simple: it’s Boston, which is where the product was bought, fulfilled (e.g. from a Boston-area ABC store), and consumed.

And now let’s consider that same case; only this time, the Boston ABC store (the ideal fulfillment center) is sold out of these shoes. The order must now be fulfilled by a store in California.

Now the dilemma for ABC’s data analytics is, to where should the demand be attributed, and, by extension, to where should the product be reallocated? Should it be allocated back to the Boston ABC store, where it would have been fulfilled if not for the out-of-stock event? Or should it be allocated (wrongly) back to the California store, where it was actually fulfilled? Assuming their analytics solution has geodemand capabilities, the answer is still Boston — the order was fulfilled in California, but Boston is where the demand originated and where the product will be consumed.

This out-of stock scenario begs the question, how many additional pairs of shoes could the Boston store have sold were it not for the supply constraint? A consumer in the store may have gone to the shelf to consume the product, but left when they found it wasn’t available. This question is answered by “hidden demand” —  when you don’t have enough product on the shelf (due to damages, sell-throughs, etc.) to satisfy demand. This is another calculation that goes into true demand.

Consider another common scenario these days — gift shipping. Say I buy that same pair of shoes and send them to my niece in Phoenix as a birthday present. Now, where should the product’s demand be allocated? A system with true demand capabilities will factor in the location(s) involved and optimize ABC’s supply chains accordingly. In any case, the product should be reallocated to the location at which it is being consumed.

Only a good prescriptive analytics solution can combine all these data points and accurately calculate your true demand. From there, you can use that figure to optimize your supply chains and maximize sales and customer satisfaction. It’s essential for satisfying your customers’ needs and improving your own business in the process. If you’re interested in learning more about our supply chain capabilities, send me an email at and we’ll get back to you as soon as possible.