It’s that time of year again where moms and dads are busy gathering Christmas lists from their kids and ensuring they have exactly the right gifts under the tree. But for retailers, it’s a lot more complicated – they can’t just ask their customers to write letters to Santa; rather, they need a flexible supply chain to meet customer needs.
Impacts of seasonal demand
Wrangling demand signal information from independent toy manufacturers, clothing creators and electronics giants - whose interests don’t always match your own - is easier said than done. And basing your sales forecasts on their word combined only with your historical data could leave you out in the cold. Last year, Americans spent more than $635 billion during the Christmas season, accounting for up to 30% of annual sales for some retailers. With that kind of revenue on the line, it’s no wonder retailers around the globe have been gearing up for the big event for months. When it comes to delivering on your Christmas promises to customers, it’s not just which supply chain management software you use that matters. The quality of information you feed into it is key. That information becomes even more vital in industries where forecasts are constantly changing the closer Christmas gets. Oftentimes, either you’re caught short and can’t respond to demand in time, or you don’t sell enough and are left with overstock. These seasonal surges in demand make supply chain management that much more difficult. “Everyone is guessing along the supply chain as to how much to make and ship,” says Herb Kleinberger, leader of the global retail practices at PricewaterouseCoopers. “And they’re all guessing in separate ways from each other, so everyone builds in extra safety stock to buffer forecasting errors. You add it up along the chain, and you end up with a huge cork that’s clogged with excess capacity.”
Importance of good data
To handle peaks effectively, you need the right tools, including a good database and analytics so you can learn what causes spikes, and how to predict them. But predictions and forecasts can only take you so far. You need to be able to dynamically adjust inventory to successfully tie data gathered from ordering systems to sales forecasts. Bob Moncrieff, a director at global management consultancy PRTM, says, “Data aggregation and trend analysis are where the CIO and IT organization can provide the most value.” He adds that in creating a flexible supply chain, the most important step is building a well-structured data warehouse, where you can store, format, and manipulate supply and demand data. It will help you see seasonal issues faster. Organizations focused on driving analytics to build a competitive advantage often overlook the importance of first having a solid data foundation. Data readiness and data cleansing are necessities to success, but first require you to actually have access to the right data. Without it, your supply chain management processes are doomed to fail faster than a reindeer counting carrots. The right data provides insights used to drive management strategies, including leveraging, pricing agreements, quantity discounts, value analysis, supply base optimization and other cost management activities. As NC State University points out, preparing that data for use in the context of supply chain management requires five distinct processes spanning software, process management and decision support.
- Data cleansing (including data acquisition, preparation and database population)
- Spend analytics
- Contract management
- Technology applications
- Customer service
Significance of supplier collaboration
As noted earlier, if your forecasting relies on third party data from suppliers, you’re likely operating on some measure of trust that their numbers are accurate. Just like the looming holiday season can put a strain on your personal relationships, it can have the same effect with your suppliers. All this fluctuation adds a new level of stress to the entire supply chain, and if suppliers can’t meet your last minute demands, business relationships can break down and cash flow across the value chain can become disrupted. Procurement is risky business around the holidays. Rob Bonavito, the CEO of SciQuest, which offers businesses procure-to-pay and spend management solutions, says “The big thing you have to remember is that, every time there is a problem or a mess-up in the supply chain, you have to have a human get involved, either by handling the invoice or purchase order.” All that manual intervention means a slower and more expensive procurement process, and threats to consumer loyalty and the bottom line. The ability to quickly and easily collaborate with anyone in your supply chain is a critical component to beating the holiday blues. You supply chain management software should provide you with the tools to connect with colleagues, share possible scenarios and outcomes, and work jointly to resolve any issues that arise from missed or incorrectly interpreted demand signals.
Real-time supply chain responsiveness
Being able to respond to those changing signals with agility and flexibility will go a long way on getting you on a customer’s nice list. Real-time responsiveness requires the ability to plan, monitor and respond concurrently. “If you’re able to, in real time, monitor your supply chain, you can basically be a little more proactive in trying to correct or adjust your supply chain so your customers and suppliers aren’t impacted,” adds Bonavito. By knowing sooner when your numbers are out of alignment, you’ll be able to act faster in adjusting to meet the change. By focusing on this type of agility, instead of aiming for 100% forecast accuracy (which let’s face it, is only a Christmas wish anyways), your supply chain will make it through the season more profitable, and your employees will be a lot more joyous when they get to spend the holidays at home.