Demand Planning in a Pandemic
The uncertainty of the past few months has certainly messed with global supply chains and purchasing habits. Need I use the words Toilet Paper? At Cloudsolve we spend a great deal of time implementing tools and software to help businesses plan and forecast their inventory or stock levels accurately. But how can you forecast in the midst of a pandemic, when you’re surrounded by so much uncertainty? Today we speak with one of our inventory experts, Karl Minahan about demand planning.
Karl, where do businesses even start with demand planning during a pandemic?
With the recent Covid-19 events, it would have been impossible for any demand planning tool to have predicted the peaks and troughs of most commodities. No-one saw this coming! Demand planning tools can be useful to determine trends but not human behaviour or unforeseen events. There’s no magic wand you can wave to get it right, but there are some best practice protocols you can use to help improve the odds of success and to minimise the risks of failure.
Many businesses pivoted to manufacturing products they don’t usually manufacture. Eg: Alcohol companies producing hand sanitizer, clothing manufacturers expanding into facemasks. Is pivoting a viable solution?
It can be, but there are a number of risks. You may be entering into a market in which it is difficult to gain traction, with existing, known, reputable companies in those markets that you will have to compete with. In addition, you may be risking your reputation and name if you bring a rushed product to market, which in the long run could be detrimental to your existing products. Lastly, other businesses may be pivoting the same way and you may fall headlong into a saturated market and end up making a huge investment with little return (or as we have seen with some businesses recently you could even be left with stock you cannot shift).
How do you approach forward planning when pivoting a product, for example in 12 months’ time, will you still be supplying it?
The big question is: Will there still be a market? If there is a market will it be saturated by other players: existing competitors and new ones? How can you distinguish your product from the crowd?
Involve all your business units in the decision-making process. They see things from different perspectives, and this can be really helpful when you’re hedging your bets on the future. Consequences can be anything from brand image and ingredient availability to impact on cashflow or writing off stock. It’s also good to know your limits. It’s ok to have produced something in the short term, especially when you’re trying to keep your business afloat in a pandemic, but if it’s not a long-term viable product, then maybe it’s better to let it go.
How important is being ‘elastic’ with your planning?
Well, just ask the toilet paper manufacturers! This one is all about being sensible in the moment and not rushing into rash decisions. Using the manufacturers of toilet paper is a good example – demand soared initially, so production needed to increase to keep up with demand. Some companies temporarily ramped up production to 24 hours a day to keep up however, here’s the key: they also thought about what the market would look like in 6 months when demand would likely revert to current levels, after the panic buying ended. People now have stock to last them several months, so the mid-term purchasing behaviours will change and likely production and consumption will be back at pre-Covid-19 levels.
You mentioned Best practice demand protocols? Tell us about some of them.
Always come back to the fundamental 4P’s principles of Product, Price, Place and Promotion.
Look at what the market is doing and what your competitors are saying or doing. The media can also be a useful tool – are they predicting any short to medium-term industry trends? Unfortunately, a pandemic is really unknown territory, a fair bit of gut instinct will come into play!
Don’t rush into anything. Panic production is the worst thing you can do! Work within a budget and calculate the costs of production (materials, labour and storage) against predicted revenue.
Involve all the business units in the process. Each business unit has different requirements, and to plan well you need to understand your constraints, from financial and market to personnel needs. You then need to work within these constraints.
Have a contingency plan on what to do should there be oversupply. You could end up with a product no one wants (as we are now seeing with some of the distillers who started to produce hand sanitiser). Make sure you can follow through on production. You could develop a popular product but end up being unable to produce it because the supply chain is broken for some of the parts or ingredients.
Finally, ensure you haven’t invested too heavily in one product to the detriment of your other products, therefore affecting your reputation or your cashflow.
In summary, there’s no magic wand to demand planning, so you need to be agile enough to take advantage of new opportunities, especially if existing markets are closed off to you. But at the same time weigh up any potential downsides. One thing that looks likely at the moment is that 2021 will be a very tough market indeed: start planning for that NOW.
If you think we can help in any way please do reach out.