Don’t Bring a Knife to a Gunfight: Tools for Successful Retail Forecasting

April 10, 2013 Larry Arnstein
Signal and the Noise -Nate Silver

If your business depends on the quality and accuracy of your forecasts or predictions about the future, then consider reading “The Signal and the Noise: Why So Many Predictions Fail — but Some Don’t” by Nate Silver. Silver is a master at mathematical model building using probability and statistics. You may remember him as the person who correctly predicted the presidential winner of every one of the 50 states and the District of Columbia during the 2012 general election. Traditional bricks-and-mortar retailers who are not already fluent in forecasting and predicting concepts and methods described in this book are essentially bringing a knife to a gunfight with the likes of Amazon and Google.

In his book, Silver says that making good predictions depends on more than just data, you also need to understand the fundamentals of how a process works. I particularly enjoyed Mr. Silver’s discussion on the use of simulation models in predicting outcomes of various scenarios. Successful simulation tools do more than provide a prediction, they also allow the user to ask why and provide explanations that pure data analytics can’t.

We have developed the Impinj Store Performance Simulator (SPS) for retail operations specifically to help retailers visualize the impact of item-level RFID on store performance. Retailers who have worked with us on SPS see it as a powerful storytelling tool that brings all their disciplines together (finance, store operations, supply chain, merchandising, loss prevention, inventory management) in a common understanding of how the business runs and the potential for improvement. And, a few retailers even see simulation as a tool they can use to plot their course toward becoming a truly data driven business.

In his book, Silver quotes the statistician E. P. Box as saying that “all models are wrong but some models are useful.” Simulation is not just about getting a correct prediction. The mere act of trying to build a model of how your business runs and how it responds to changes has many benefits for an organization. Chief among these benefits are very low cost experimentation (virtual A/B testing), experiential learning (think video game versus text book), and consolidation of tribal knowledge. I invite you to try out the Impinj Store Performance Simulator to see how it can help you gain insight into the trade-offs and opportunities as you seek to improve store operations.

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