Back to School is Different for Demand Planners Too
The Shift to Virtual Massively Impacts Supply Chains, but You Can Come Out Ahead
By Matt Campbell, Founder SCMO2
This week is back to school for kids in Atlanta, and as we prepare to start the year with virtual learning, I can’t help but think about how strange this year will be for my kids—and all kids—not going back to school in person. There was very little back-to-school (B2S) clothes shopping in our home, no traditional list of required school supplies, and no teachers requesting support to help stock their classrooms with additional items not funded by the school district. We did, however, ramp up our WIFI mesh network at home, buy a new printer/scanner, another laptop, and new desks to provide adequate space for three kids to each have a good area to work and attend virtual classes.
Since SCMO2 specializes in supply chain planning, we can’t help but notice how this huge shift in consumer behavior is affecting all the companies who supply these products. For certain businesses and product segments, accurately predicting the B2S demand spike for 2020 will be more challenging than ever. Getting systems to accurately predict 2021 demand based on historical sales will be even more daunting.
To level the production load, most Consumer Goods companies with huge B2S demand spikes need to ramp up production as much as 6-9 months in advance of first order, building inventory positions as far back as the previous fall and winter. With COVID not hitting the U.S. until late March, and limited understanding of how it would affect our lives until months later, manufacturers had to make difficult decisions about inventory strategies in real time.
Some were unable to throttle down production after realizing that demand expectations dropped because they had already pre-built for much of the B2S season. Even companies with sophisticated planning systems that use advanced statistical forecasting had trouble predicting just how massive the impact from COVID would be, since the actual demand signals were not seen until after much of the inventory had already been produced for the season.
So, what can these companies rely on to be successful in these most challenging planning times?
First, there is no silver bullet (there never is). However, anyone who was predicting that planners would be obsolete in 5-10 years due to fully automated planning systems, artificial intelligence and machine learning may be rethinking that now!
Now more than ever, planning organizations need mature S&OP processes and real-time data visibility to be successful. The ability to react and make informed decisions requires a well-attended cadence of S&OP meetings to ensure collaboration between sales, marketing, finance and operations. You simply cannot evaluate performance and plan the best course of action without doing so.
Decisions about product mix, the most profitable use of constrained production resources, prioritization of customers, and inventory positions can make or break a year depending on how well they are navigated. These decisions require data visibility so everyone can evaluate the situation and make fact-based decisions. Scenario planning tools, like those in SAP IBP, can be included in the S&OP process to help teams consider several possible outcomes. Then, everyone can collaboratively agree on the action plan, documenting assumptions for post mortem analysis at a later date.
There are other methods that can be helpful in navigating these turbulent times, such as demand sensing and lean manufacturing principles like Demand Driven Replenishment (DDR). These systems and processes help make short-term reaction decisions based on actual sales demand shifts, but are often more appropriate for shorter lead times and more constant and predictable demand patterns. Although these methods are less effective for making longer-term planning decisions for highly seasonal products such as those for B2S, they can help you react once you are in the middle of the season, making informed decisions about throttling up or down based on how well products are selling.
Inventory optimization tools can also be helpful by dynamically recalculating target stock levels across your network based on demand and supply variability and desired service levels. Similar to DDR, inventory optimization will adjust every time the calculation is run, typically weekly, driving a more reactive supply chain. IO us even more valuable when coupled with S&OP processes that run inventory projections with various demand scenarios.
Companies equipped with the systems and processes described here stand the best chance to emerge from this pandemic unscathed, maybe even in a stronger market position than competitors who lack these capabilities. Still, much work needs to be done to allow planning systems to accurately predict future demand and inventory targets in 2021. Now is the time to prepare.
Planning strategies based on data analysis will be required to help determine which products can use lean principals, which can utilize statistical forecast driven models, and which will require constant manual intervention. For those utilizing statistics and predictive models, data cleansing and forecast profile and parameter changes will be critical to help these high powered systems predict future demand. S&OP processes and human intervention will become more important than ever to overlay external factors, like continued remote schooling, into the plan.
Planning is always challenging. In 2020 it is the most difficult it has even been. But the potential reward for investing in, upgrading and addressing planning and demand has also never been greater. Let us know how we can help.
