Comment – Five ways to tackle market and demand volatility
Planning and forecasting for an unpredictable and variable market is a major challenge
Volatility and complexity are endemic in today's business environments, which makes planning extremely difficult. Along with streamlining process and supply chain steps to run as fast as the pace of change, Bob McKee, industry strategy director for fashion at Infor, sets out five further recommendations for dealing with market and demand volatility.
Platforms like Pinterest, Instagram, Facebook and Twitter have completely overhauled the way in which fashion is introduced, researched and consumed. A tweet on this season's must-have coat, or an Instagram model sporting the very latest ski-wear, can result in a substantial and instantaneous spike in demand for a product, putting the company behind the product under pressure to react, and capitalise on this demand, swiftly and appropriately.
Volatility and complexity are endemic in today's business environments, operating on a scale and at a pace which even ten years ago might have been considered unbelievable. This makes planning extremely difficult. Understanding demand in a particular market, or for a particular product is a challenge, but when you start to introduce planning and forecasting for an unpredictable and variable market it becomes the stuff headaches are borne out of.
So what is the solution?
Well, the bad news is that there isn't a comprehensive solution. However the good news is that streamlining process steps with the right ERP (enterprise resource planning) system and supply chain management tactics will help create the foundation and necessary agility to run as fast as the pace of change. This moves things from being guesswork to a case of moving the right pieces to the right places to react and make the best decisions possible.
Supply chain is king
Supply chain flexibility and managing multiple supply chain configurations is becoming paramount, especially as the increasing use of online channels is forcing supply chain managers to reduce their response times and fill smaller, more personalised customer orders.
Moving forward, companies who sell goods directly to consumers will need to learn how to keep up and stay on top of these trends. They'll need to build value chain partnerships with suppliers and better integrate their value chain processes, so they can replenish their supply in a matter of days rather than weeks, thereby minimising the inventory and work in process risk in the chain.
In fact, a survey by PwC on the global supply chain found that "companies that acknowledge supply chain as a strategic asset achieve 70% higher performance. Companies that beat the competition on supply chain performance also achieve significantly better financial results. Supply chain leaders deliver on-time in full on 95.7% of occasions and have an impressive 15.3 inventory turns, while the laggards achieve only 3.8 turns. That means greater efficiency and customer satisfaction without driving up working capital – essentially, having it all."
The leading companies included in the PwC survey all have supply chains that are efficient, fast and tailored, despite the turbulence in the market. They are also investing in three primary areas to differentiate their practices: collaborating with key customers on planning (e.g. effective forecasting), end-to-end supply chain planning and visibility, and a vendor-managed-inventory direct-replenishment model.
With this in mind, here are five further recommendations for dealing with market and demand volatility:
- Build strong value chain partnerships with your suppliers and integrate your processes. The goal is to get from a traditional supply chain to a collaborative value chain relationship by sharing information and risk in order to align more responsively with consumer demand. To create harmony in the supply chain, have a plan for what to do with poorly performing products, and when and how to do it. Don't play musical chairs with the suppliers and retailers you depend on. Instead, share the risks and the rewards.
- Shorten time to market and shrink your planning horizon. Time compression results in more overlap between the design, production and inventory control phases, rendering some conventional procedures either unnecessary or counterproductive. Look for "waste" in the value chain and remove it. Shrinking your planning and execution horizon is hard but yields good results.
- Lead time and agility mean more than chasing the needle for the absolute minimum cost. The lowest cost supplier is likely to be the slowest as well, because it will rely on full capacity utilisation to compensate for low margins. Geographic distance can also add lead-time. These factors make replenishment unreliable and sluggish. Instead, source components where they are the highest quality at the lowest cost, and lead-time is flexible and reliable. Even consider bringing components together for assembly in a place close to market.
- Manage inventory as a central pool. Make sure to remove all inventory silos and do not allow separate inventory management by channel. This is a key foundation for success in today's omni-channel environment.
- Do not pre-allocate warehoused material stocks as a standard procedure. Market volatility due to fickle consumers, the impact of social media and other factors make pre-allocated stocks meaningless. In fact, pre-allocation really only makes sense if you contract with your customers for direct-to-store shipping or in fulfilment of standing orders for pre-set quantities.
Consumers are increasingly driving the economics of the fashion industry and organisations need to harness all of the information available to them in the best possible way. Only through taking such measures can they be in the strongest position to respond to volatile demand, manage inventory risk and rapidly take market leadership.
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