Amid the heart-breaking catastrophic effects of the coronavirus pandemic on families and communities around the world, COVID-19 is also putting severe strain on supply chains vital to business sustainability and recovery.
The new landscape is particularly tough on demand planners. In the consumer goods industry, for example, consumption patterns are severely disrupted by hoarding and other demand phenomena. While many in the supply chain are inevitably engaged in fighting fires, it’s important for planners to keep a cool head, both as the turbulent events take their course and as we gradually return to a more stable situation.
Countless fiction writers have taken a shot at how the next pandemic would affect people’s consumption behavior, yet not a single one has predicted the sudden rush on toilet paper. Unprecedented events have an unpredictable impact — that’s one lesson we already learned from the COVID-19 crisis.
In the first few weeks of the outbreak in the western world, demand skyrocketed for a wide range of products, from pasta (hoarding) to computer headsets (for video conferencing). Demand planners in the consumer goods industry were somewhat at a loss because the usual forecasting methods became much less reliable than previously.
Meanwhile, many companies took the pragmatic approach of rationalizing their portfolio, focusing on high runners and putting the production of specialties or selected flavors on hold. Task forces were set up to manage the effects and demand planners have been running around the house or calling colleagues much more than they normally would.
How can demand planners make the best use of their forecasting solution under such unnerving circumstances? Well, there’s one basic rule to keep in mind, even in crisis situations, and that is to keep demand plans as stable as possible. Make changes only when their relevance is clear.
At OMP, we advise customers to lower some of the smoothing factors in the planning engine to get a more responsive forecast, keeping in mind that the performance metrics then need to be interpreted differently. Demand planners may also want to run order book reports daily to track sales performance against the demand plan in near real time. And they should keep an eye on what’s happening in the world and in their industries to assess how that might impact demand.
In any case, manual updates should be made based on market intelligence. For this reason, existing communication channels within the planning community should be ramped up and new ones should be brought in. In times of crisis, demand planners can deliver a lot of value, not just through statistical analysis but by establishing a robust collaborative connection between demand and supply.
Planners should also be preparing for what comes next. These are exceptional events and should be treated as such, otherwise the atypical sales volumes we’re seeing will skew the quality of historical time series for future forecasts. For this reason, outliers should be tracked and documented from day one.
Demand planners can do this within OMP by allocating an event code and line to forecast items that are impacted, for example ‘COVID-19-2020-March’ (note that the name anticipates a possible second outbreak in the fall, which some experts are warning of). This allows the demand planner to exclude the items from the sales history prior to generating a new statistical forecast.
As the effects of the COVID-19 crisis are expected to ripple through most of 2020 and into 2021, planners also need to be preparing for the long run. This is an unprecedented event in so many ways, meaning there are no reliable references to learn from. But the forecasts can be complemented by upside and downside estimations which can be used to develop what-if scenarios for discussion during S&OP exercises.
For each scenario, the impact on plant and machine capacity, inventory levels, and customer service can be evaluated. Planners can then plan upfront and let supply chain managers determine the risks and take appropriate measures with respect to production capacities, storage space and workforce.
Ready to apply these best practices?
Wendy leads a young energetic team of documentation consultants, coordinating their expertise from all areas of Unison Planning™. Her own focus is forecasting and S&OP, and her passion is educating customers to use our solutions to maximum potential.