Almost every company is currently experiencing demand disruption. Food and consumer goods manufacturers along with their retail counterparts are dealing with unprecedented highs across consumer channels, while “non-essential” companies are being plagued with historical lows. In both cases, planning for the future has become increasingly difficult.
It is often during seasons of tremendous uncertainty that it becomes most critical to deliver accurate and timely plans for the future – or at least build contingencies for the different versions of the future. And now is one of those times. As we all wait to see exactly how and when the recovery from COVID-19 will play out, there are a number of steps that your planning organization can take to make the most of the current environment and effectively prepare for the future.
1. Take a hard look at your forecasts
As you analyze recent sales data, hone in on the ultimate demand patterns at the consumer level, not just order demand or shipments. This will give you a better idea of what true demand is, how it has changed, and whether it’s likely to sustain itself or if it’s just a bubble or a temporary valley. Also, be sure to determine the pipeline effects for customers and consumers, and factor those into your forecasts. Even if they aren’t perfect, it’s better than not accounting for them at all.
You may also need to reevaluate the frequency at which you update your forecasts. It’s not uncommon for many companies to have monthly forecasts, but in a turbulent environment like the current one, that’s not often enough. The environment is changing rapidly and a planning process that plods along will result in suboptimal results.
In fact, our go-to method – time series forecasting – in many cases will be of little value in the current environment along with the concept of “outlier bands.” For some companies or products within the portfolio, both the present and future may be outside the bands and the historical baseline may have shifted forever.
2. Reset safety stock and order quantities
Our supply chain planning consultants at Chainalytics see a lot of very rudimentary and unsophisticated safety stock methods. Those methods may work in business-as-usual or slow-growth environments, but they will quickly become a source of pain in an unstable planning environment. To avoid wasting precious cash and other resources with too much of the wrong items and not enough of others, leverage your supply chain planning technology. You may need to reconfigure it to use appropriately dynamic methods and include a scenario-based inventory process to buffer risks and uncertainties.
Order quantities (i.e., order, manufacturing or purchase) should also be recalculated frequently until the environment stabilizes. Otherwise, you may lose precious efficiencies with unnecessarily short production runs or have inventory tied-up in large amounts of cycle stock on slow-moving items.
3. Apply scenario-based planning
Using a single set of assumptions for planning exercises will prove to be a huge weakness in this environment. You need to build in flexibility so you can anticipate or quickly react to different cases. However, be sure to define your use cases carefully – not just a simple best case, worst case, and most likely. This will require some creative thinking and the consideration of new assumptions. For many companies, this is wholly uncharted territory.
Keep in mind that scenario-based supply chain planning must tie into scenario-based financial planning to ensure that funding will be available to execute your operational plans. The need for cash and potential impacts on cash flow can vary widely, depending on variables that may have never been considered before.
4. Focus on constraints and other pain points
Depending on your business model, constraints and other pain points will vary and likely change over time. If you have technology that supports this, make sure to adapt the configuration as needed to make the best use of it. Make planning as automated and flexible as possible so that when you can change a critical input, the outputs will quickly and predictably follow.
Also, be sure to factor in absenteeism and other impacts of social distancing. This is important for not just operational personnel, but for support and management as well.
5. Effectively use segmentation
The “one size fits all” method for planning isn’t optimal under the best of circumstances and it certainly will not optimize your plans in a turbulent environment. Hard choices will be required and there needs to be a rigorous set of rules or metrics to drive competing priorities. Segmentation will enable your team to make the best decisions – which may be very different than they were previously – quickly and consistently. If it moves you away from a cookie-cutter approach, it will pay returns not just in the current environment but also the ones which follow.
Consider using segmentation for demand, inventory strategies, and customers. And be sure to rethink what’s really important to manage, because this may have changed and continue to change over time.
Change is an opportunity for growth – if you seize it. Chainalytics’ combination of top supply chain talent, proven methodologies, and proprietary market intelligence consistently puts our clients ahead of the curve. Reach out if you could use some help refining your supply chain planning processes to prepare for the “new normal.”
Steve Thrift is Vice President of the Integrated Demand and Supply Planning consulting practice at Chainalytics. In this role, he leads the firm’s delivery of projects related to S&OP process design & improvement, demand and supply planning, and planning technology selection and implementation.
