Generating a Clearer Picture of Volatile Demand
In today's rapidly changing consumer landscape, generating an accurate picture of future demand has become increasingly challenging for consumer goods companies. With the fluctuating consumer behavior, volatile market conditions, and the rise of e-commerce, industry leaders are implementing innovative strategies and next-generation planning capabilities to adapt to shifting consumer preferences and optimize their decision-making processes. In this blog, we will explore the top five takeaways from an executive panel discussion on generating a clearer picture of volatile demand.
1. Importance of Clear Demand Signals:
A clear demand signal is crucial for companies as it directly impacts sales, inventory management, and overall business performance. Without an accurate understanding of demand, companies face the risk of tying up excessive working capital, obsolescence, and markdowns. Recognizing the significance of clear demand signals, industry leaders are prioritizing strategies to capture and interpret volatile demand data effectively.
2. Addressing Rapidly Changing Consumer Behavior:
The panel participants acknowledged the substantial impact of rapidly changing consumer behavior driven by factors such as COVID-19, inflationary pressures, and geopolitical issues. They emphasized the need to adapt to these changes proactively. By leveraging attribute analytics and demand sensing, companies can gain valuable insights into consumer preferences, reduce turnover, and align their product offerings with market demands.
3. Managing Channel Mix and E-commerce Growth:
The rise of e-commerce and the proliferation of various distribution channels pose both challenges and opportunities for consumer goods companies. The panel discussed the importance of predicting and managing the proliferation of channels effectively. They highlighted the need for a comprehensive understanding of customer preferences and the ability to adapt distribution strategies accordingly. Retailers shared their experiences with digital commerce, emphasizing the importance of evaluating profitability and anticipating inventory growth when venturing into e-commerce.
4. Balancing Historical Patterns and New Norms:
The panelists acknowledged the difficulty of relying solely on historical patterns in the face of shifting consumer preferences. With the advent of the COVID-19 pandemic, determining the new norm and predicting recovery became more challenging. They emphasized the need for closer collaboration between departments, connecting with customers, and leveraging up-to-date data and insights to accurately forecast demand and plan accordingly.
5. Effectively Managing Product Life Cycles:
The panelists discussed the challenges of managing product life cycles in an environment of volatile demand and shorter timeframes. They emphasized the importance of establishing a robust portfolio review process and employing statistical analysis and machine learning techniques. By identifying key attributes, conducting like-for-like comparisons, and leveraging external market data, companies can make informed decisions, rationalize their product portfolios, and minimize costs associated with launching and discontinuing products.
So welcome everyone and welcome to this panel where we will talk a bit about generating a clearer picture of demand. And I think it's clear, but Why is this important, Martin, if you don't get a better demand signal that obviously has an impact on how much can we sell? We have – it's an impact on how much inventory start up in working capital but also around write offs obsolescence markdowns and so on and so forth. Right?
So talking about a clear picture of volatile demand actually is something that should resonate with each and every friction within a company. And today with me, I have Sudan from from Accenture. We're now from from Este as well as their order as well as Sohal from Google with me to see how we can actually – what leading companies are doing to actually address the volatile demand picture, right? And what we have seen in the past few years, which is driven by COVID, it's driven by inflationary pressures, it's driven by geopolitical issues is that we see rapidly changing consumer behavior, right?
We can obviously my penalty opportunity to introduce themselves. We'll also then have them to ask the given answer to the question of what are you seeing, how leading companies actually adjusting to these changes and trying to get ahead of them. I'll start with a few Sudan.
Yeah. So what we're seeing in the marketplace is obviously disruption in terms of of demand.
And, you know, I think from consumer standpoint, decisions are made on what is the right range, for example, in retail.
And we work with a retailer that's got an average range of twenty five to thirty thousand SKUs.
And we we saw a pattern with them where they were turning over ten to fifteen thousand of those SKUs yearly. And quite often, the new range that they bring bring in is outdated twelve months time and they delete another ten thousand SKUs. And bring another new ten thousand SKUs.
So with with this retailer that we worked with, the role of attribute analytics, and demand sensing played played a huge role in in reducing that turnover.
But I'm also keen to understand what the what the others think on this. Yeah. Sure. So my name is Marina, and I'm joining from Estelder. I've been with the company for five months now. I've been previously with Johnson, Johnson, Unilever term gambles of few other consumer goods companies.
And I think when it comes to demand, I find that the challenges are pretty similar. And most recently, I think we all faced COVID time. Right? And I think the biggest challenge of that I observed is really understanding.
What the new norm is? What the recovery looks like? Is it the new trend? Did we already reach the new norm?
Or are we still projecting growth or decline. Or so I think it's really it's shifting so much that reliance on historical pattern becomes more difficult. Right? So it's really bringing all those insights, understanding connecting more with the customer and with the commercial teams.
I think that will become even more critical.
Great. Hello, everyone. I'm Sohil and I run the consumer hardware planning business for our teams in Asia Pacific. So, a lot of times I get what is someone from Google doing at a supply chain conference. So we have a lot of consumer hardware products, pixel phones, watches, buds, Google Home, So variety of consumer hardware products and my team and I work on those.
In terms of how we navigate this uncertainty, I think just like everybody else, the pandemic was a massive shift There were three changes. Right? One was what type of product consumer were buying? We saw massive shifts in that. How people were buying them? Everybody everything was moving online. Like e commerce short ten years of growth in a year, and now we are pivoting back to some of that.
So a lot of these changes happen in the same time and all of us are and experts are grappling with how to deal with them. For me, what I use as a reference is something what is Amara's law which says we overestimate the impact of technology in the short term but underestimated in the long term. So we went to e commerce. We are back doing retail again, but adding in the longer term e commerce is here to stay. And it's a hybrid approach that'll happen. And as supply chain professionals, we need to stay ahead of that curve to get that right.
Yes. I would fully agree. Right? So not only is the consumer the change the consumer behavior that we're seeing, but also the challenges and actual opportunities that we see in this shift in channels, right?
So obviously, we are aware, you move to e commerce, you move to direct to consumer delivery, she can move to pickup locations, You see that whole set of channels, how to get your products to the consumer and to the customers is proliferating a lot. It obviously drives different demand patterns and such. Right? So what is it that you see – what is it that you're doing yourself or what is it that you see doing all this that actually how to predict such proliferation and obviously use that back to that insight to build a better picture of demand.
Anyone who's Yeah. So on the on the channel mix, we've got a couple of clients who've noticed that through their pathway into digital commerce, couple of opportunities from a top line growth perspective, but also a couple of challenges. So one, having worked with the retailer for twenty plus years, The path to digital commerce is not necessarily an easy one. There is obviously a benefit of top line growth.
And and a share of the wallet. But the cost of fulfillment is quite quite high. So for this retailer that I worked with, We used to make seven cents in the dollar. Post the digital commerce journey. They made three cents in the dollar. Right? So that's that's the impact that you see when you go down the path of digital commerce, and I think many companies and consumer goods companies underestimate the cost and and and and the sophistication needed from a network standpoint to make sure that you're profitable.
The other challenge that we see with, you know, omnichannel fulfillment is quite significant growth in inventory.
Right, which most consumer goods companies and retailers don't anticipate.
So again, it's it is a you you know, one of the companies that we're working with They had a thirty percent increase in inventory. And we did some benchmarking across other companies that went down that path. And we felt that thirty percent was actually not a bad number. So there were there were some insights that that we got on that digital commerce growth.
I think what what I can add there is that I feel like e commerce is not an option anymore and that's what we've been seeing increasingly. Through the pandemic, the retail partners that we worked with, the ones that did not have an online presence, already have a robust one now. They were reaching out to us because for us as a larger company, we are known for everything on the internet. So they were reaching out to us with help on how do we get set up quickly and start selling our products online.
And from a supply chain perspective, I feel channel fill for e commerce is very different from channel fill for a traditional brick and mortar business. So we need to make sure that we are setting our companies up for success to manage that change. It could be a DC strategy that you have, micro fulfillment centers that need to open up or with quick commerce coming in, are these like dock warehouses that are very close to where customers are. So those are massive shifts that are happening. And based on which direction your business is going in, it's very important to get ahead of these changes.
And I think I can also notice our perspective channel mix, you guys all alluded to that as well. That's been a challenge. Right? Because during COVID, we saw a double digit growth in online, but now returning back I think we see other channels growing.
So it's really trying to critically understand what's gonna happen. So to your point, it's not gonna go anywhere, but it may not be as high as we potentially planned for. Right? So it's really ensuring that we balance it correctly and we planned correctly and we put inventory correctly as well.
And also have the right partners, especially when it comes to online to be able to serve our customers there. Okay.
And another area that we see that drives demand volatility is the definitely in consumer goods the proliferation of new entrants, small players, let's say, trying to get a bit of the market share. So maybe for Sudan, in Marina, question is, how do you actually in your own when you build your demand plan? How are you actually factoring in what a competitor, margin or margin will do in that aspect? Is there any lessons learned? That you can share?
I think from our perspective, we definitely refer a lot to the category data, right? So we do look at the external data and look how our competitors are growing. We look very carefully on the market share growth, category growth, and trying to understand how that relates back to us. Right?
And what does it do to to our demand? And even more so, I think there is also dependency on our presence in certain channels as well. So I think that's helpful. So it's really having that as an external benchmark to be able to better predict where we're heading, but also potentially our commercial decisions as well and how we want to and where we want to play as well.
Would it include as well because category growth data typically comes in, let's say, once a year, twice a year at best one. Is there also shorter term events that you look at from I think we are pretty good in terms of data. We're getting that at least once a quarter, right, but also getting some more insights from our commercial partners as well. So again, I think going back to the same conversation as having this very, very close relationship where they they have more data, they were looking at the most recent trends. We're looking at the sell through. So really sells to the final customers, right, to really get closer to what's the true demand is and to how that's performing. And getting some more insights from our business partners as well.
Yeah. So look, we work with a retailer that has his own collection.
But he's also has other beauty companies that that it also sells their product in in the same store.
So as part of their offering, they're very clear in in in ensuring that they don't compete with those other beauty companies that sell their product, but also are very clear on what their point of difference is and and and and a combination of, you know, market intelligence as well as data and analytics to ensure that they are relevant with their compare competitors as well as their customers at the same time.
Yes. And you already brought it up before Surane is around the new a poor proliferation, right? The greater which your portfolio actually gets changed year over year by adding new products into the portfolio when of course also taking out all those hard drives. An important area there is around product life cycle management.
And what I would keen to understand is with these rapidly changing consumers consumer preferences and short and short on product life cycle as such, how are you actually managing for that? And how are you still able to build, let's say, correct, demand pattern for new products even though you know your historical base actually gets shorter and shorter, so you have less room to win analytics, say. Welcome your perspective. That's an that's a very interesting topic and something that I'm very passionate about.
In fact, I think what we saw earlier today what William did with the shoe business. I thought that was super interesting. And that's what I think supply chain needs to have a seat on the table when it comes to product design. If you let product do what they want, they'll always want to build the most fancy things that have the most unique components.
But I think as supply chain, you need to influence a number of shared components that can go generation over generation -- Mhmm. -- especially for products that have a shorter life cycle. If you're building from scratch everything for a new product, you'll never be successful because by the time you get it right, the consumer preferences would have changed. So I think having that SKU rationalization strategy, shared components over multiple life cycles is super important to stay relevant and essentially address that demand in time.
Yeah. I think for us, it's a very similar issue, right? And I think it's having an establishing very good portfolio review process. And I think in terms of the demand planning.
We also have a lot of replacement of the product. So one every year, basically. Right? So the the history is really trying to map some of them are similar to the ones we are replacing, then really tapping and using that history.
Otherwise, I think it's yeah. Again, if it's brand new product, then relying a lot on the insights from our commercial colleagues as well.
So then anything you want to add on the on the air? No, look I think we got to take the guessing game out with the use of analytics and market intelligence, and that's what we've been working with our clients on.
So I think the cost of bringing a new product in, arranging it in in store, you know, promoting it, and then deleting it six months later, it's quite a significant cost. So I think we've got to take the guests guessing game out and, you know, use AI and and market intelligence as much as possible. Awesome. Awesome. Is there anything also how you indeed, Marina, what you said? The like for like comparison. Right?
All the other approaches that you see emerging where you could maybe look at multiple attributes to actually build up a future profile. It's an area where you can share some lessons learned there. Yeah. I think we are trying to approach it in many different ways, and especially I think switching on the statistical or machine learning view sooner.
Right? So looking at daily, weekly buckets and trying to already get some sense of what that's gonna look like and to have a bit of a unbiased view on how that NPL is performing. So I think there are a number of initiatives there, but it's I think it's a big opportunity for sure for us. So we haven't sold it fully yet.
I think we're trying to leverage back to your point analytics where possible. Right? So that we really have a very clear and good assumptions.
But I think it is it is important to to to be able to identify what are those key elements and key attributes that you you have to identify to be able to find a similar product, similar product within your maybe your competitor portfolio is somewhere else, so that you can you can plan for that better. Yeah. And I think also the PolyOS Qs analysis maybe just to stick a bit on that topic. How does Jetx see that that's a good practice to win that? Because what we often find is it's quite a bit of a disconnected process.
People are not really they're good at adding new products to the portfolio, but less so on taking out products. So what is, let's say, what would be your ideas on a good process of decision making framework to actually manage that portfolio calls Any anything you want to share that? I think there are two things that we do to manage this. One is we have this proper product introduction process for anything new that we launch.
And this is a cross functional forum with all teams on the table, right, from products, supply chain, finance, sales, everybody is on it. And everybody has to sign off of why we are creating a new SKU, like whether are we launching a new color, are we launching a new memory? Is there does it make enough sense to do that? Or is it just that marketing would like to come out with a new color?
So I think having a seat of the table for all those function is super important. So it's a consensus decision. And you're not just doing it because one part of the business feels attract. Everybody has to have an equal say into it and then influence over it to make sure you're doing the right thing for the business overall.
So I feel that that one level has been super important. The other one which you mentioned is the cleanup part. And for that, we do like a twice a year thing. Where we get together and review everything that we have.
What is it that we need to cut? What are areas of opportunity?
And, what are the learnings that we get that we can share with new product areas so that they can incorporate it as they design new things from the beginning. So rather than keeping it as a reactive progress, how do you make it more proactive? Okay. There's a specific use case in in this retailer that we had around shades of foundation.
They increased the number of shades from twenty to a hundred and twenty. They increase it by six times. And and and they want to understand the impact of that. And what we did through the review is we found that shades of green or red were more popular than any other shade.
And out of the hundreds hundred and twenty or hundred and sixty shades, there was about ten SKUs that constituted like eighty percent of the volume. So the question then to the, you know, to the buying team was really, you know, what is the right range. So I think those sort of sort of use cases were useful with with that retailer to get them to focus on what they needed to focus on. Okay.
And I think by the looks of the story you're all sharing, it's just let's say reasonably mature companies with well established processes data seems to be in place. I'm sure there's areas where you think that's absolutely not the key but apart from that Nuance, right? But we see a lot of companies are struggling to go on this journey, right? They are afraid of they don't have the process, they don't have the right quality data or no data at all.
In a sense why so in general they feel they come from a less mature position than maybe they where they want to be if they were to start journey on improving the demand forecasting and demand plan as such. So what will be your advice to them if let's say you have a lower maturity company, how should they start? Where should they start? Any recommendations or group access you care to share?
Yeah. I can go first.
I think, again, it's starting from basics, making sure that it's very clear. You separate your baseline forecast from all the other events. Right? I think you don't need a lot of data to have just the average run rate or something that you can use for that.
And then overlaying that with all the other information, all the events or new product launches or something that is there. So I think that always helps to structure it instead of just having one number which is not very clear on what goes into that. So it's really separating baseline from your events or sales drivers. You call it different ways.
Right? But and documenting that assumption. So that when you look back into your history, you can track back whether what happened, and then take those lessons and bring them into So it's really building up the contextual information as well in a more structured way. We won't excel, PowerPoint emails -- Yes.
Yes. -- and what have you. So really, yeah, making sure that's all done. No.
I think for me, it's a framework called the three piece that I think you should focus on if you're starting up. It's plan, protect, and prioritize.
So I think what happens is when you are starting up, people can over emphasize on forecast accuracy, but I feel that's just part of the picture. With the forecast, you either get it wrong or you get it really wrong. It's about how you react to it as what's the important part. So I think important to be prepared with scenarios of what will you do when you get it wrong or you get it very wrong.
If you're not focusing on that part of the equation and over indexing on getting the forecast accurate that that won't get you very far. Anything you wanna add to that sooner? No. I think it's been well covered.
Okay. So when you run this journey, obviously there's the known benefits of improved forecast accuracy which leads to a better sales projection, office see and that's the inventory problems we had of SENSE one and so forth, right? But as you have gone through the journey or you have worked companies to get through the journey, what are some of let's say, the more unexpected benefits that you would call out that you didn't expect from the onset, but actually improve to be quite relevant as well. Any any lessons there? Unexpected.
Unexpected benefits. Site side benefits to the the let's say the hard numbers that you obviously would go after anyways. So I think with any investment in in a platform or capability, the organizations that invest in business processes not just the technology, do really well with value realization.
I think that's been our observation.
So I think, yes, the platform is really, really important, but I also get it back to the core of business processes.
And having an organization that's very aligned in the way that they actually operate makes planning a lot easier.
I think as you grow maturity of your demand planning process, what I see is important that the organization recognizes the type of demand volatility that they deal with. I think the range is pretty big. Right? So and I had a chance to work in different industries and you Being in the industry when five percent error is is was not great, so the the the company was struggling with that and ranged up to eighty percent error.
Right? So it really very much depends on on the volatility and recognition of that, not trying to to really realize or and be prepared for that, I think, as you mentioned, right? So in some businesses, it is type of volatility they have to deal with and have to be prepared to serve the customers. And ensure that the right safety is stuck in place, so that you look at it end to end, and you truly understand what's your current capability, what's your current ability to serve customers, maybe smooth your water if possible.
But if not, then really being prepared to to to have the inventory in the right place to serve the customer when they ask for that product.
I think you mentioned unexpected things. So for me, there are two types of unexpected things that can happen. One is, of course, the motivation of your team. I think if you get it, right, you can see how people happy are, how how happy it makes people.
And in just a general job satisfaction goes up. I think when you get a consensus forecast accurate, that's when the dynamics that improve across teams, like with your sales counterparts, with your product counterparts. I think you can't put a value to that. But getting that number right, which is consensus is I think fantastic for business.
Amazing. Amazing answer. So I think we have about one and a half minutes left is I want to open it up for one or two questions from the team here. Any questions?
Anyone get there to ask to the care or dare to ask if you to the panel as such.
So the question was really around the capabilities. So you spoke a lot about, you know, processes, systems, obviously, data. I guess the world of a demand planner has a lot more data now than they ever did before.
So what would you say in terms of the key capabilities for demand planning organizations you see now and in the future?
I think from my perspective, I feel for a demand planner is not just getting the numbers right, but it's the ability to influence.
It's the sales counterpart that you're working with. It's the customer that you're working with. How do you influence them with the data that you have and build that story around it? To convince them to align with what you have. I feel that's a very important skill for any demand planner now. A lot of people can have the numbers right, but not everybody can do the influencing part right. Awesome.
So I think you wanna ask Yeah. I just wanted to add to that. I think also important to recognize that there are different abilities that you have to have within the team and you can't have that within one person. So I think that's why really making sure that you have a specialist focusing on the data.
But in the same time having planners who have a better business acumen to really be able to then deal with that numbers and have those conversation with the cross functional team to align and get to the consensus. Yes. Awesome. Thank you.
Nothing with that, I would like to close the panel. Thank you for obviously attending. I'm just sharing your insights and knowledge as such. Thank you.
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