Article
Demand Forecasting after COVID Lockdown
Demand Forecasting after COVID lockdown - Extracts from Intent’s Supply Chain expert practitioner Covid huddle
Supply chain forum, the Intent Group, held a Covid huddle on managing demand & supply as we move into the next phase of the pandemic and towards a “new normal”. They brought together advice from a collection of consultants and solution providers to offer their advice, here’s an extract with advice from Hatmill’s Karl-Eric Devaux, Liam Lindley and Chris Shaw.
What do you foresee as the main pinch points when business restarts?
Chris Shaw, Supply Chain Consultant: The parts of the industry that were (partly or not) furloughed will struggle to restart immediately while their customers will expect it.
Furthermore, in order to refill their supply chain the initial order is likely to be higher than normal, leading to likely overshoot throughout the supply chain (bullwhip effect). During this time, it’s important for businesses to understand their maximum capacities, as production/inventory levels are required to increase, do you have enough people, space and equipment to not only service demand, but also to replenish the depleted WIP and safety stocks required?
How will digitisation support adaptation to new normal?
Liam Lindley, Virtual Forecaster: Having only physical data available (not digitised), makes analysis and subsequent decision making much more time consuming.
Data should provide the foundations for the vast majority of decisions made within the supply chain function. Therefore having data available in a digital format enables analysis to be compiled more quickly, improving speed to market or realisation of any potential efficiency gains.
Data accuracy is also imperative and the current downtime could be the perfect opportunity to validate things such as product weights and dimensions, the categorisation of SKU’s, and any legacy system parameters that may have been overlooked in the replenishment process.
Short/medium term demand forecasting & impact on lifecycle
Chris Shaw, Supply Chain Consultant: While the crisis has clearly had an impact on short term consumer purchasing decisions, once it is over it is likely to return to normal.
In the short term, focus on your crisis management principles, balancing inventory & service objectives. Treat the short term as abnormal, as statistical forecasts will hold little value, and focus on customer collaboration to keep the wheels moving. It’s critical as you move into the medium term to cleanse all of the abnormality from your databank.
Unpredictability /uncertainty – scenario or plan?
Karl-Eric Devaux, Virtual Forecaster: A scenario is a significant and clear deviation to your existing plan. Your plan is what you are going to deliver.
The scenario(s) allow you to understand the impact on your whole supply chain of an event. Not just a financial analysis of gaining 50% additional sales thanks to COVID-19 but also the impact on your production (overtime?, rushed deliveries?), on your supply chain (additional through put capacity required), etc. The key to success is to be thorough (cover all areas) without getting drowned into details.
Risk of forecasting more than 3 months ahead /bullwhip risk
Karl-Eric Devaux, Virtual Forecaster: The risk of not forecasting 3 months ahead is even worse.
One of the main forecasting principles we would advocate is to plan based on ‘truth best you know it’, it’s going to be virtually impossible to predict exactly what’s going to happen in 3 months’ time, however chances are you will be able to plan for your base demand. Again, we would suggest building a few scenario’s (probably only 3-5), so you can start to bring some sense of planning control to your S&OP processes.
Consumers rejecting deliveries & placing extra orders
Karl-Eric Devaux, Virtual Forecaster: Having strong Demand Control processes in place. Allocating available stock to strategic customers; not a first come first serve basis.
Keeping communication channels open with customers is crucial as chances are your customers procurement/planning functions etc may be disconnected, so keep talking to your key contacts. Secondly, appropriately segment your customers into priority orders so your stock is best utilised.
Impact of boarder closures causing famine/feast materials
Liam Lindley, Virtual Forecaster: Volatility of demand is problematic to supply chains and can have longer lasting effects on stakeholders, especially those further down the chain.
Remaining agile is key. Stock piling raw materials too early may lead to unnecessary working capital constraints, therefore understanding demand to ensure good customer service remains priority.
In addition, having alternative sourcing solutions prepared will allow for flexibility. What materials can be sourced locally (within borders) and are there ways to de-risk supply through identifying different geographies in which to source? As the impact of COVID19 dissipates unevenly around the world, risks and opportunities will most definitely arise.
Balance reducing finance vs healthy inventory for 6-mth lead times
Karl-Eric Devaux, Virtual Forecaster: Understanding all the levers of your inventory is critical when uncertainty increases. A statistical approach to inventory setting is key.
Your inventory must be driven by the minimum order quantity, lead-time, demand variability and supplier performance SKU by SKU; not just a blanket ‘x’ weeks across the range. Prioritising key lines, customers, and product margin through a segmented approach will support in the decision-making process.
A statistical approach to inventory setting is key. Your inventory must be driven by the minimum order quantity, lead-time, demand variability and supplier performance
Pro and cons of omitting the sales team
Chris Shaw, Supply Chain Consultant: Sales teams are an integral part of the forecasting process, however with so many unknowns as a result of COVID19, it may be difficult for them to constructively contribute.
In the short term, market intelligence and the demand profile from the Planner / Forecaster will likely take precedence, however it’s important to maintain both engagement and structure throughout with the sales team. They can provide additional intelligence directly from customers and any implications that may have on demand, but also continuity for when the world returns to normal and standard S&OP practices resume.
Ideas & Insights
Sharing Our Expertise
Our guides, ideas and views. Explore our insights to deliver tangible improvements to your supply chain and logistics operations.