Take Your Inventory Levels from “OMG” to Optimal: Demand Planning in the Time of Covid-19
By Chris Inglett, Business Development Manager, Absolute Value
Along with all the medical, economical, and societal crises related to Covid, some unusual trends in consumer buying patterns have emerged as well, making it difficult to forecast potential demand. Companies have seen some products lose demand altogether, yet they cannot keep enough of others in stock. Alternatively, some products have seen hardly any change in consumption. Here we highlight some of the issues and provide some guidelines to help you achieve inventory optimization.
Is historical usage history?If you’re a supplier many of the changes in consumer buying habits in the wake of Covid present several problems in terms of using historical usage to forecast demand.
Can you use your historical usage data to forecast right now? The short answer is yes. Making a sophisticated buying decision based on what you have seen in the past is still important. However, now the need for a dynamic forecasting and replenishing system is even more critical. Be sure you have software in place that can adapt to changes quickly, and more importantly, can identify stock shortages as soon as possible and make recommendations so you can initiate solutions as quickly as possible in the replenishment cycle.
When normal consumer demand trends return, should you use the usage data from the current conditions to forecast going forward? This one is straightforward. If the current conditions create a new trend going forward, then you can and should use this usage data in your forecast. However, if the present circumstances do not continue, and buying trends return to their past patterns, then you’ll need to exclude the current usage from your forecasting engine and instead use the data from before the pandemic began.
Only time will tell if your historical usage is obsolete. There is a silver lining here: If the current trend becomes the new norm, the usage data that you collect now can replace your old data going forward.
Stay on the alert and adjust, adjust, adjust!In uncertain times such as the Covid-era it is critical that you stay on high alert, in terms of both product supply and consumption. Your demand planning system must have complete visibility and allow (and even encourage) immediate adjustments. Dynamic replenishment, the ability to detect demand into the future, and predict stock outs and rectify them before they occur, is absolutely essential. This will enable early warnings and enable you to manage more by exception during the pandemic and even post pandemic.
Your demand planning solution should also provide you the ability to set up alerts. Alerts can and should be set for things such as spikes in demand and potential stock shortages. While you might not be able to avoid unusual situations that arise in customer buying patterns in the midst of a crisis, the faster that your system can detect the changes, the quicker you can react and steer the ship back straight.
Additional focus areas during the Covid-19 era:
Hub & Spoke – You can improve forecast accuracy by using a hub and spoke model because it enables the use of a larger sample set to determine trends in buying patterns while enabling you to take advantage of vendor minimums and specials. In a situation like the Covid pandemic there is a possibility that your old historical data could be rendered obsolete, so you need to extract as much as possible from the small sample set you currently have. Remember that the best hub and spoke capabilities will allow you to set the hub warehouse by product, so not every item will be purchased from the same hub. Always be sure to consider location and usage when determining your hubs.
Collaboration – Collaboration with customers and vendors is generally a good idea to help both sides adjust and confirm their supply-chain decisions – in good times and in bad. During the pandemic, collaboration became even more crucial in terms of enabling stakeholders to see potential trends as soon as possible.
Manage Sourcing Resources – We all witnessed certain products and resources becoming extremely scarce during the Covid pandemic. Managing current replenishment sources tightly became critical, and in some cases it made sense to consider additional vendors. Keep in mind that in times of uncertainty, alternate vendor sources can provide great insurance against unforeseen spikes in demand or delays/disruptions in delivery from your original source.
In order to navigate all the moving pieces that accompany a crisis you’ll need to have a technically advanced demand planning system in place that operates fluidly and dynamically. You need to be able to spot problems and react quickly. Set up plenty of alerts to strictly monitor for demand spikes and potential stock-outs, and be prepared to adjust your forecast and manage your inventory by exception. Most of us would like to have our “old normal” back as soon as possible, but reality says that we must always be ready to handle a crisis.
Let us know if you’d like to learn more about the Absolute Value Demand Planning system or would like to schedule a demo.