With Black Friday only weeks away, writing an article now on what should retailers and suppliers do to ensure a successful sales period is probably not that helpful! Actions were taken many months ago now, and so the winners and losers for this year’s Black Friday and the upcoming festive holiday sales period for that matter, have already been decided.
Instead, let’s look at what those who will have a successful holiday season may have done (or not done) to prepare, and what they are planning to execute during the sales period.
Spoiler alert: simply doing the same things as previous years won’t cut it anymore.
Supply Chain and economic headwinds
This year businesses are being hit by a double whammy of supply chain and economic headwinds, both of which will have material impacts on the holiday sales season. Supply chains are still recovering from the disruption of the pandemic and the hangover of a shifting labour market that is directly impacting product availability through production capacity and freight disruption. The bullwhip effect is in full force right now, it’s not difficult to find articles describing the feast and famine product availability scenarios many of the world’s largest retailers are currently wrestling with. Add on top of this, is rampant inflation that’s driving up costs and squeezing consumers’ disposable income. The planning landscape is certainly a challenging one.
Planning in silos will guarantee failure
Planning in functional silos has never been a good idea and only ever results in an overall suboptimal plan. Today’s level of supply constraints and supply variability means that planning in silos guarantees failure. When sales are planning promotions and deciding on what level of discount will drive a certain rate of sale, they need to be fully engaged with supply to understand can the supply chain deliver the product availability to support their plan. It’s likely that it can’t and there will need to be choices, at this point finance should also be involved to evaluate the financial impact of those decisions. Our Black Friday winners will connect their planning processes, driven from one version of the truth, enabling them to model scenarios and evaluate choices, to drive the right decisions.
Demand history is full of black swan events
Our demand history over the past few years is full of anomalies caused by lockdowns, supply shortages, and over supply. Solely relying on simple time series analysis approaches or uplifts on prior years is no longer sufficient. Technology can play a key role in helping here, taking over the analytics heavy lifting and providing tools to enable easy collaboration and enrichment of the demand plan.
Some key techniques our winners will have taken advantage of:
- History cleansing: As well as helping to identify outliers in our demand history and correcting them, we also want the ability to manually override history. The objective here is to provide the forecasting engine with a more representative demand history on which to generate a base forecast
- Multi-level forecasting: Working with forecasts at more aggregate levels of the customer and product hierarchy generally allows for better demand history that’s more stable and has some of the noise that occurs at the SKU level cancelled out. Forecast at the level it’s going to be used for planning. For example if we want to know how much capacity to secure with a supplier then forecasting at ‘Total Jackets’ level is more meaningful than trying to generate a forecast for ‘small red summer jackets’.
- Advanced Machine Learning (ML) algorithms: These can really help to build forecasts based on the impact of additional factors that can help cut through some of the uncertainty in generating the demand plan. Typically, external factors such as footfall, consumer search activity, website engagement, and consumer confidence indexes are used along with internal factors such as marketing spend, availability, and price.
Inventory as a competitive weapon
In a highly volatile and unpredictable environment product availability gives our winners their competitive advantage. The objective for availability though is not just simply to not run out of stock, thanks to the bullwhip effect this can quickly lead to excess stocks. The objective should be driven by business strategy which will be informed by the planning scenarios described in the section on silos. If supply is going to be constrained then perhaps, we do want to run low or even run out, this probably provides opportunity for marketing to create a sense of panic with consumers and for sales to discount less – again this level of insight into the plan to support the right decision making can only be achieved if all our planning steps and functional areas are connected.
Our winners will also not have a one size fits all approach to how they manage inventory. They will segment the portfolio, usually by rate of sale and demand variability and apply different inventory policies per segment. This segmentation will also be used to decide where in the network they position inventory. For example, slow moving highly variable products we might choose to hold centrally at a DC rather than push out to all stores with customers able to order in store for collection the next day or home delivery. This allows us to hold much lower inventory, achieve a better service level to customers, and avoid unnecessary expedite expense continually rebalancing inventory between stores.
The role of technology
We no longer have the luxury of being able to work with relatively static plans that change little from one month to the next, in the new VUCA world we require planning to be able to happen at the speed we do business. Spreadsheets and their associated tribal processes are unable to deliver this capability. Our technology choices though need to be well thought through. Whilst it might be tempting to invest in the latest shiny AI forecasting tool, little benefit will be achieved if it is used in isolation with a myriad of spreadsheets sat between it and other tools.
My top 3 objectives for investing in technology would be:
- Removing silos and driving integrated planning: all the business planning processes need to be connected and able to interact seamlessly
- Scenarios, scenarios, scenarios: the notion of having a single plan that changes very little is dead, effective decision making requires the evaluation of scenarios to inform the choices we have
- Make time to plan: a lot of what happens today in planning is actually just manipulating and reconciling different sets of numbers. Technology should do the analytics heavy lifting, automate where possible, and create the headroom to allow planners to add value.
I, for one, will be watching with interest how retailers and suppliers perform over the coming holiday sales season and drilling down into the differences of approach taken by each and how it impacts on their performance.
Brian has over 25 years of experience in supply chain planning with a career that has spanned operational roles, solutions consulting, and software delivery. He has deep functional & operational expertise in demand planning & forecasting, supply planning, inventory planning & optimisation, logistics network optimisation, sales & operations planning & execution (S&OP, S&OE), and integrated business planning (IBP).
His focus for the last 5 years has been on the design, development, and delivery of supply chain planning technology solutions that leverage the power of optimization and scenario modelling. Delivering the digital transformation to support the people and process transformation required to move to world class supply chain planning. In doing this he has worked across multiple industries and collaborated with academia, industry analysts, and thought leaders.
If you’d like to speak with Brian or connect with our team of Supply Chain experts to discuss how you can beat the Black Swan, please get in touch.