In response to and in anticipation of supply shortages and pandemic containment due to COVID-19, consumer behavior has changed. Even with these behavioral shifts, retail supply chains must continue to focus on the right product, right place and right time; however, meeting these prioritized needs are significantly more challenging due to new challenges and increased risk.
Challenges such as reduced cash flow, weaker sales, short-term demand spikes driven by supply shortages, and permanent changes in customer behavior — including shift to online, new preferences, and new brand or product substitution — have placed substantial stress on retail supply chains. These behavioral changes are most pronounced in categories such as food, consumables (e.g. cleaning supplies and over the counter pharmaceuticals), and personal care products.
If the medical and pharmaceutical communities were able to eradicate COVID-19 tomorrow, the long-term supply chain impacts of COVID-19 would persist for at least many months still. With that, retailers must adapt existing supply chain systems and processes to minimize pandemic impacts for both the short and long-term.
While big data, analytics and AI can be used to improve demand planning, most retailers lack the time and resources to develop new demand planning solutions given the urgencies of COVID-19. As such, retailers must adapt existing systems, tools and processes to meet pandemic demand planning challenges.
Here are just a few ways that retailers can revamp and re-strategize their demand planning processes in order to respond to COVID-19 needs in the short-term and adjust to the long-term effects that are sure to come.
1. Correct Inventory Data for Out-of-Stocks
As inventory count (on-hand) accuracy is at risk during pandemic sales due to increased theft and suspension of cycle counting activities, as a minimum, it is important to ensure store and distribution center teams “zero-out” physical out of stocks to ensure minimal inventory data accuracy. More accurate on-hand data is required to revise substitution and demand transfer models used to analyze impact of out-of-stocks on historical sales to include much more broad substitution patterns.
2. Adjust Sales History to Account for Historical Out-of-Stocks
As inventory count accuracy is at risk during pandemic sales due to increased theft and suspension of cycle counting activities, as a minimum, it is important to ensure store and distribution center teams “zero-out” physical out of stocks to ensure minimal inventory data accuracy. Corrected on-hand data is necessary to revise substitution and demand transfer models used to analyze impact of out-of-stocks on consumer behavior. During pandemic containment consumers demonstrated broader substitution patterns in comparison to pre-COVID-19 purchase patterns.
3. Promotional Analysis
Promotions analytics can account for short-term demand spikes, hoarding (modelled as pantry loading), impact of out-of-stocks on demand, and year-to-year demand due to cyclical and non-cyclical factors. Promotional analytics can be leveraged to differentiate short-term demand changes from changes in market structure and long-term changes in consumer behavior.
4. Seasonal Demand Shifts
Retailers will need to shift their seasonal demand models to include the flu season each year. The deep impact of COVID-19 ensures that consumers will take future global health risks more seriously and change their purchase patterns more profoundly with each flu season.
5. Supply Chain Parameters
Retailers will need to remove “just-in-time” assumptions and ensure parameters such as safety stock and lead time are adjusted for the short and medium term. That said, they will need to plan a roadmap of supply chain adjustments for a longer-term strategy to help return to a steady state and reincorporate just-in-time as supply chains stabilize.
6. Merchandising Requirements
In light of COVID-19, retailers should review and reduce minimum on-shelf quantities. Reduction of minimum on-shelf quantities for slower moving items will free up supply chain capacity (and cash flow) to address priority out-of-stocks.
COVID-19 has placed profound stress on consumers, retailers and retail supply chains alike. In order to meet the needs of consumers and better respond to calamitous supply chain challenges in the future, retailers must improve substantially revamp their supply chain and demand planning. Existing tools and processes (including promotions analytics) can be immediately leveraged to help improve demand planning without the time and effort required to develop new analytical tools and techniques.
Tony Gray is a director in the Transformation Practice, Enterprise Solutions at Tata Consultancy Services (TCS). His primary responsibilities are in the retail, CPG and supply chain sectors. As a member of the TCS Transformation Practice, Tony partners with industry leaders to leverage SAP and other enterprise technology solutions to transform their organizations, build competitive advantage, and more deeply engage their customers and markets. His experience includes more than 20 years working with leading retail, CPG, manufacturing and telecom firms.