Fuzzy Crystal Gazing Means Overstocked Warehouses

Guess wrong on how many widgets you need for Christmas 2000 and you'll end up with angry customers screaming for their widgets, or a sea of red ink because of warehouses full of widgets you ordered but couldn't sell.

Sales forecasting is as crucial to e-commerce success as it is to traditional retailing, but because Web sales are so young, forecasting is still "the great unknown," says KPMG Consulting LLC supply-chain expert Tony Blasetti. Unfortunately, in the Internet world, that's probably the single most difficult challenge. "I've got a client right now working [its way] from bricks and mortar to a Web-based storefront for whom it's a huge unknown because nobody knows how to put those forecasts together," Blasetti says.

"We don't know 100 percent how all products will translate to the Web and what sales they are going to have," agrees Dan Lynch, president of logistics for Web integrator Organic Inc., San Francisco. "We work with our clients to try to anticipate that, but most e-tailers are stocking up on the entire breadth of their inventory. In doing so, many warehouses are loaded up with goods that aren't moving as fast as people would like, and that creates a bottleneck in the warehouse and a financial drain on the organization."

KPMG, New York, combines vendor feedback, publicly available research on how sales transfer from brick and mortar to the Web, and the experience and knowledge of KPMG and its clients to put its forecasts together. But Blasetti admits it's still an imperfect process: "What we're doing is trying to mitigate risks. We're over-committing on inventory with the understanding with the vendor population that we would rather be overstocked initially and have to adjust later than to be in a situation where we put 10 [items] in inventory and get an order for 100 on day one. The crucial step in the process is fulfilling on promises made to customers. If you're out of stock and let the customer down, there's a good chance he won't come back."

As e-tailing posts decades of experience, forecasting will become a much more exact science, as it is with traditional retailing. "It comes with time and information," Lynch says. But the companies who began capturing data during the Christmas '98 and Christmas '99 selling seasons have a major edge over those whose first venture into cyber-retailing is Christmas 2000.