How to Flex Up and Down to Keep Pace with Unpredictable Demand
Say you’re a retailer selling skiwear or summer goods, a wholesaler supplying party stores with Halloween costumes or one of the thousands of retailers who hitch their revenue dreams to a booming holiday season. Like any business where revenue-generating opportunities are tied to a specific season, keeping up with surges in demand can make or break the bottom line. As a result, it’s critical to ensure that your supply chain can get those products to market at the right time, in the right quantity and at the right price.
When it comes to seasonal supply chains, that’s often easier said than done. Any number of issues can get in the way of progress. Problems run the gamut from challenges with suppliers to economic and geopolitical events, infrastructure challenges and poor planning.
So what’s the secret to optimizing your supply chain to meet high levels of demand in short windows? The truth is, there isn’t just one secret. Here are four critical success factors to consider when constructing a smart seasonal supply chain. Let’s take a look:
1. Understand how your customers prefer to conduct business.
Know your customers. Find out how they want products delivered to them and their preferred terms of purchase. The answer will drive your supply chain decisions and supply chain processes.
Does your customer want to take delivery at the origin port of export, destination port of entry or at a door delivery location? Is your customer a vertically integrated retailer for whom you handle sourcing and distribution? That customer may want you to manage the product from source to the shelf. Are you a wholesaler selling to retailers? What are your customer’s core competencies and how are you providing products which align with their strengths?
Different retailers have different needs. For example, Retailer A may want the most aggressive cost and take ownership at the point of origin or take ownership early in the supply chain and assume the lion’s share of the risk. Retailer B wants you to take care of everything from procuring goods, managing supplier relationships to handling customs clearance, duties, air freight or steamship forwarding and truck delivery to the door. Ether way, the first step to a smart seasonal supply chain is knowing how your customers want to buy and structuring terms to meet those specific needs.
2. Forecasting and planning for seasonal demand
Just as it’s critical to understand how your customers want to purchase, you have to be able to forecast demand so that you have the right product in the right quantity at the right time. There are different ways to predict demand. Some companies leverage historical information. Others analyze recent purchasing trends, market trends and what’s going on in the industry to create projections. Whatever your systems of record are along with the tools used to forecast demand, consider these questions when sizing up demand:
- What type of products are you selling?
- What type of customers are you selling to?
- How far in advance can you/should you finalize the planning and forecasting process?
- Do supplier minimum order quantities impact your planning horizon?
- What will you do if demand outstrips your forecast? Replenish as inventory sells out or order enough buffer inventory to ensure you can meet unplanned demand?
Your next challenge is providing trading partners with accurate demand data so that they can meet production capacities and required delivery deadlines. Depending on your product and customers, that might mean placing orders three, four, five or even six months out. Instead of dealing with seasonality variance when it’s too late, developing an effective strategy to demand planning is critical.
3. Determine how your upstream visibility into orders and suppliers occurs
You’ve established how your customers want to take delivery of product. You’ve sized up demand and provided a production plan to suppliers. Now, you’ll want to determine how much visibility you need to track, divert or reallocate inventory to minimize supply chain disruptions. Prior to order placement, consider these factors:
- The level of collaboration you have with your suppliers on production activities: do you have the ability to see upstream production activities via an order or PO management system? Are you notified during the production process of critical milestones that can impact finished goods shortages? What immediate steps can you take to avoid major disruptions in the supply channel?
- How complex are the products you are producing? Are they highly engineered that require long lead times or are they commoditized products that can be produced relatively quickly?
- Sourcing Methodology: are you single-sourcing or sourcing finished goods from multiple suppliers?
- Advance lead time: if you don’t order enough of a product that has special holiday packaging, how will you be able to meet a quick re-order process?
The point is, if your supply chain provides visibility into all of these factors, and you do your homework – creating hypothetical scenarios, factoring statistical deviations into orders, making sure you have trained people at the point of origin and destination, implement sound processes, have service level agreements, and utilize enabling technology (P.O. or order management systems) you’re in a position to make contingency plans.
4. Make sure you control the process instead of the process controlling you
If you understand the nuances of your customers’ businesses, have multiple supply chain solutions in place and an order management system that supports different suppliers, provides timely business intelligence and aligns production information with customers, you can adapt to unexpected changes more efficiently.
Say you place an order four to six months out. You have a high level of visibility that includes a critical milestone path with suppliers and timely updates across discrete events in the production process. You discover there’s a problem with the order. Now, you can notify your customer six to eight weeks out that you can’t meet the deliverable quantity or time frame. You can agree to deliver a partial order and minimize disruptions to your customer’s supply chain. By better managing expectations, you’ll improve customer relationships and prevent small problems from turning into deal-breakers. Bottom line? With information, people, processes and technology – you control the process instead of the process controlling you.
Is your business driven by seasonal demand? Can your supply chain flex to support seasonal surges in demand? Are you equipped to deal with seasonality challenges? Do you have visibility into the supply chain and a good P.O. management or order management system in place?
To learn more about how to structure, build and manage a smart seasonal supply chain when there are multiple suppliers involved, download a PDF of a question-and-answer session done with Chain Store Age magazine on the challenges of managing a multi-source retail supply chain.