Demand Planning Amid the Coronavirus Outbreak
Welcome to Demand Planning Amid the Coronavirus Outbreak, a series by Fiddlehead Technology. The purpose of this series is to support S&OP teams across the food and beverage industry who are assuring supply chains are able to feed millions of us across the country.
In part one of the series, we aim to assist demand planners in taking stock of uncertainty by offering advice on data collection best practices, consumer behaviour assessment, and recession planning.
Thank you to all demand planners for the critical role you are doing during these challenging times.
Part One: Taking stock of uncertainty
The Covid-19 pandemic has strained food and beverage supply chains across the globe. Demand planners are facing the daunting task of trying to discern demand patterns, while accounting for external variables of the pandemic, the magnitude of which has not been seen for a century.
There is a tremendous amount of uncertainty concerning how long the societal effects of a widespread quarantine will continue.
What we know in the short-term is that panic driven consumer behaviour has caused an initial demand surge correlating to a bullwhip affect throughout supply chains.
However, little is known on what the intermediate-term and long-term effects of Covid-19 will be.
The central question demand planners are racing to uncover is what is the length of the demand shock and what are the ripple effects?
We do not have a crystal ball that can alleviate your demand planning headaches, but, what we can do is provide you three pieces of advice to strengthen your position when we emerge from this uncertainty.
Continue collecting data.
There is a lack of data to constitute an adequate sample size towards uncovering clusters of similar demand patterns. We must continue to collect data and turn our attention inward to form assumptions on how Covid-19 has affected inventory.
Presently, demand planners are busy determining what products are out, where is product very low in channels, and where inventory should be forward-deployed in the supply chain to fill gaps. This contingency planning can be stretched to form strategic assumptions on how the pandemic has affected risk exposure of your core products and the periphery products of your suppliers. This can be done by assigning level 1, 2, and 3 risk profiles to your product lines, accounting for your ability to source manufacturing materials from suppliers. Greater focus can be placed on higher risk profiles and plans made on how to alternatively source necessary manufacturing materials, if your main suppliers have halted operations due to safety concerns.
Forming key assumptions on your product lines as result of the pandemic can be used as a guide for decision making in the present term. In short, these actions will place you in a position to assess product growth opportunities as result of greater demand from the pandemic, once an adequate sample set of data is available for analysis.
Know your customer.
The Covid-19 pandemic has disrupted everyday life for many North Americans: your customers included. Gather with your S&OP colleagues to rewrite aspects of your customer persona accounting for behavioral changes.
Documenting these changes to your customer personas will provide a baseline to validate or disprove assumptions. The central question is how these behavioural changes will translate over time. We have observed the largest shifts in customer behaviour relating to channel mix and purchasing decisions.
You have likely noticed a shift in your channel mix. Industry wide trends have pointed towards a surge retail and private label sales, the latter being amplified by value seeking behaviour in fear of recession, while noting a drop in the Quick Food Service and Causal Dinning segments as result of social distancing restrictions.
Regarding purchasing decisions, keep in mind the difference between primary and secondary preferences vs. substitute purchases. Is a recent surge a sign of a sustained increase in demand, or of a run on substitutive products resulting from retail stock outs? In short, are customers choosing your brand or grabbing whatever is left on the shelf?
It is time to implement recession planning.
The RBC Economics Weekly Review, by senior economists Nathan Janzen and Josh Nye, reported unprecedented layoff numbers in both Canada and the US, with almost a million employment insurance claims in Canada, and 3.3 million in the US. Though, food and beverage manufacturers have seen an initial surge in demand with the onset of the pandemic, inevitably, demand will dip as a cash crunch sets in as result of unemployment.
In recognizing the event of economic downturn, common themes emerge for food and beverage manufacturers:
First, there will be a degree of consumer hesitance to adopt new products. In examining your own product portfolio, are there any new products set to be released during this fiscal year and how will they be received during recession?
Second, consumer preference will gravitate towards brand leaders and low price/private label products. Focusing on your current products, are any at risk of being squeezed out during recession and can you strengthen product position through bonus packs, couponing, or other strategies?
Third, retailers will move to delist fringe products. Reflecting on your own product lines, are there any options to make products more desirable for retailers off contribution margins?
Immediate action that can be taken is to dig into past data. Mine all internal and institutional data available from prior recessions such as the 2008 housing crash and 2001 dot-com bubble. What trends can be extrapolated from past downturns and will these trends be mirrored in the coming months?
Take this a step further by comparing competitors’ actions during past downturns and in the present term, to trends you extrapolated from your internal and institutional data. These insights on activities and reactions of competition, in similar positions to your firm, will provide a holistic view of your market and aid in identifying blind spots from your prior analysis.
What’s Next: Stay tuned for Fiddlehead’s next post – Part Two: Transitioning to Strategic Forecasting. This is the next installment of the Demand Planning Amid the Coronavirus Outbreak series and to be released Wednesday, April 22nd, 2020.
About Fiddlehead Technology: Fiddlehead works with prescriptive analytics to find elegant solutions to some of the food and beverage manufacturing industry’s most complex problems. The result is more accurate demand forecasts, allowing companies to lower inventory, achieve higher levels of service, and improve their margins in an increasingly complex global market.
