The ongoing uncertainty and complexity due to COVID-19 has many longing for the days before it was part of our vocabulary—and our lives. However, the world isn’t likely to revert any time soon. That means distributors need to look forward, assess their new surroundings and reorient.
One area that needs strategic adjustment is “demand planning,” which has been greatly disrupted by the pandemic. Demand planning teams have dealt with declining revenues and uncertain demand from both suppliers and customers, and now they face an unsteady return in demand as states and businesses reopen. The glaring issue is: Most distributors aren’t prepared. They haven’t adjusted their processes for the new and different environment.
How can you equip your teams as demand recovers?
In NAW’s Unlock the Power of Inventory Analytics, my co-authors and I posit inventory management as a trade-off between service and cost. The current crisis has redefined the service element—or product availability. Demand disruption has shifted product and customer mix for many distributors.
In our research, we analyzed distributors’ crisis responses across verticals to identify evolving trends. We found that there are three key steps to managing market shifts and balancing customer service and working capital, or inventory, as we move into the new normal.
1. Assess your evolving product mix.
Take a granular approach to the way your product mix is changing to better forecast demand. Instead of applying blanket adjustments to your entire inventory, analyze which of your categories are performing better, worse or the same, and align working capital accordingly.
One way to find these variances is to compare sales of the product to the same period the year before. Identify which are surging at an increase over 10%, which are slumping by more than 10%, and which are staying relatively static.
The deeper you dive, the closer you’ll get to accurate expectations. Are products surging in certain states because they’re in a later phase of re-opening? Are certain products slumping far past 10%? Is part of your customer mix driving this trend, such as non-essential businesses?
2. Evaluate your changing customer mix.
Understanding the “who” behind certain demand surges or slumps can help you adjust the limits you’ve set for your inventory or working capital to make strategic changes amid dramatic demand fluctuation.
As an example, you might have experienced a surge from customers in the health care industry during the early months of the pandemic. You also might have seen a boost in sales from e-commerce customers. How can you allocate your working capital to accommodate those products they are purchasing? Further, are these trends likely to continue or are they related to a singular incident or need?
3. Align your supplier mix.
Finally, to truly reorient, you must remove silos between functions and consider the data underlying three key areas of your business at once: products, customers and suppliers. Teams from each segment shouldn’t operate independently, as their decisions have an impact on the others. For instance, if the purchasing team decides to stop buying a product or drop a given brand but doesn’t think of the customers they’re affecting, you could lose business—especially new customers with critical needs.
Having this in-depth understanding of the “why,” “who” and “for how long” behind surges and slumps in your customer and product mixes should inform your decision-making around inventory. It can help you determine which customers and products to prioritize. It will also show you where to redistribute working capital, and more.