Peak…what peak? Demand spikes predictability…I don’t think so.

Any of you who work in supply chain, retail, fulfillment or shop, know that we are in entering into the crazy holiday season for retail. Otherwise known as the “peak season.” A season where we look forward to Black Friday, Cyber Monday and other massive revenue driving events. But does this mean anything anymore?

Much has been written about how we look at demand signals and where these are coming from. In the good old days, we looked at some simple times – Christmas peak season and back to school as the big events, with smaller events such as Valentine’s day and Mother’s day. Fast forward to today, and now we are seeing mini-peaks emerging all over the calendar. Whether they are artificial events such as Amazon’s Prime Day or Singles’ day in China, we are now seeing these types of commercially created demand spiking events. On a smaller scale, retailers such as Old Navy created artificial demand from their $1 flip flop day. But we also have to think about other bolt of the blue demand drivers. The latest one comes from the recent US Presidential election.

Those of us who spend much of last week switching between all the major networks as states were counting votes, were exposed to a number of pundits working the “big boards.” Whether MSNBC, Fox or CNN, we all watched as states and counties were analyzed over and over. Counties like Houston County in Georgia were highlighted as they were counting votes. Of course John King from CNN was corrected in his pronunciation. Outside of counting votes, an interesting demand spike emerged. As Steve Kornaki from MSNBC mentioned his stockpile of Gap Khakis on air, the San Francisco retailer enjoyed an unexpected spike in their Khaki pants sales. A pleasant outcome for the Gap. But in a world of hyper-connectivity and social media, we are seeing more of these mini-demand spikes. Whether it is national soccer team that goes further in a tournament than expected or a princess wearing a specific dress, demand spikes are and will continue to emerge from a random and unexpected places.

So what does this mean for retailers and their supply chains?

• It all starts with visibility – supply chains are always chasing the elusive network visibility. Being able to have a rich and real time picture of your supply chain. This quest for this Holy Grail continues to be elusive. But the effort must continue. Know what is happening within your supply chain is the first step.
• Rethink your inventory strategy – not simply when it comes to your working capital, but also your work in progress, raw materials to name a few. How do you better meet these demand spikes? Know what is available to promise, in real time. Rethink how you build and place your safety stock across your network.
• Work your data governance – end of the day, we are all digital and data companies. Double your efforts when it comes to how you work your overall data strategy. How are you leveraging data within your network, which sources are you tapping into and how are you internally leveraging this data?

End of the day, demand driven events are going to be difficult to predict and anticipate. Consumers, with all their available choices and empowered by their digital assets, are increasingly fickle and unpredictable. Retailers and their supply chains cannot depend on the predictability of known demand driving events. While they will continue to adapt to meet the demand associated with Black Friday, Cyber Monday, Singles Day, Mothers’ Day etc, they will also have to be nimble enough to meet demand spikes when a journalist gets prime time coverage for a week and is pitching your khakis.

Supply chain strive to achieve precise demand shaping – doubled edged sword

Over the past few weeks I have been meeting with a number of supply chain services companies who are talking about and focusing on developing solutions that will allow users to be laser focused with demand sensing and shaping. This was particular evident during my meetings at NRF in New York. We also have the likes of eCommerce giant Amazon who have patented technology that claims to be able to put on the truck the product you have yet to order because they know that you will order it! All very interesting and exciting for supply chains – these supply chains strive to eliminate or at least control the lumpiness associated with their demand patterns.

However this begets a question – is this necessarily good? For example. The situation I hear often is what takes place at Starbucks. A regular client walks into their local Starbucks, the barista notices them standing in line and knows their preferred order. The customer reaches the cash register and their usual venti, skinny, vanilla latte is already waiting for them. All they have to do is pay and pick up their piping hot coffee.  Sounds lovely.

They know what you want before you order it!

And for the most part maybe that customer appreciates the convenience, and feeling of being so well known that you are the “mayor” of that Starbucks. But what if that customer does not want that skinny vanilla latte? What if the customer wants a hot chocolate one day? Do they dare deviate from their usual order or do they accept the usual order for the convenience?

The same holds true for grocers such as Stop and Shop or Walmart, who let you order online and pick up in store – and will predict what your basket will look like. So all you need to do is drive to the grocery store and pick up your order. There is no need to think too much. Of course the positive is that there are tremendous time savings for the customer if they do not want to contemplate a new mix of groceries. But what if the consumer wants to try a new cheese or kitchen cleaner? If their order is already compiled for them will they get the opportunity to see what else is available? Or do we not want to give them the opportunity? How do we make sure they have the opportunity to browse?

My point is not that supply chain users and vendors should not stop striving to get too smart and more effective when it comes to demand shaping and sensing. However there must be some balance when it comes to how precise and “effective” the supply chains need and want to be with regards to the customer. Yes, we want to eliminate lumpiness and extract those savings from the supply chain. But retailers and other players in the supply chains need to still keep a balance with being very precise with how they manipulate and predict demand with the opportunity for their customers to deviate from their usual demand. Retailers and other customer focused industries need to determine how precise they want to be with their demand shaping and how much freedom they want to give their customers to roam and wander through options.

Demand – it is a fickle beast

Understanding customer taste and their buying patterns remains a tricky exercise. The story of L.L. Bean and their snow boots is a great example of how challenging it is to accurately predict demand. The Maine clothing and outdoor company is already sold out of their iconic boot. According to the Yahoo report, click here, there is already a 100,000 name long waiting list for the boot. Wow. Talk about a good problem to have, well maybe.

L.L. Bean cannot just ramp up their manufacturing, well in the long run they might be able to, but not fast enough to meet this pent up demand. Based on their meticulous manufacturing process, it takes half a year to train someone to manufacture the product, you cannot just bring on seasonal labor or outsource to a contract manufacturer to bolster your assembly line. So what should L.L. Bean do? It isn’t as if these shoes are a new product that vastly exceeded the expected demand. These shoes have been around, for what seems…forever.

No…you can’t wear this LL Bean boot

Their popularity is clearly back. I remember my classmates wearing these when I was in high school…and that was a long time ago. I never looked at them as a trendy item, not like what UGGs did or other brands. But clearly the product has regained popularity with the “younger people.” Meaning it is appealing to the 15 – 23 year old segment where trends can truly go viral. When you do a Google search for “L.L. Bean boots” you get sub searches “women,” “men,” “frat,” and “preppy.” Clearly it has mass appeal for the kids!

Should L.L. Bean have had better demand sensing? Could they have anticipated this upswing in orders months ago? Granted, based on the lead time they need with regards to adding manufacturing capacity, it might not have mattered. And how should they monitor this demand moving forward? Will there be this level of demand next winter? Or will some other brand become the cool footwear on campus next winter? This is one area of Matrix Commerce that calls for a high degree of digital sophistication as well as some good old fashion intuition.

Clearly this season is over capacity and there is very little L.L. Bean can do to accelerate the production. Moving forward, L.L. Bean needs to apply some savvy digital monitoring to better gauge the demand for 2015 and beyond. For example – what is the reaction of the shoes? Are they trending on social channels? How are they being discussed on social channels? Are the returns on pace with historic returns? Or are there more or less? L.L. Bean should monitor the fake and knock off products – imitation is the sincerest form of flattery. Companies that can produce a similar product will rush into the market if they believe the pent up demand cannot be met or if there is another layer of demand at a lower price point. These are all digital data points that L.L. Bean will have to pull back into their planning and forecasting engines to better manage their supply chain. Of course there is the other strategy of potentially keeping the supply low, to create exclusivity of the product. Hmmm makes one wonder.

But this latest Christmas season and fashion trend story reminds all of us, that accurately predicting future tastes and demands remain a fickle beast. The digital world allows us to cast a wider and more detailed net of what is going on, but we are far from being able to create an precise map for demand.

Now where are my boots…we are having a Nor’Easter here in Boston!

 

Happy July 4th! Don’t forget your supply chain…

Okay I realize that I am a tad strange to associate the United States biggest day with supply chains but a conversation today sparked some thoughts….

The premise: I was chatting with friend today about the logistics that go around the July 4th barbeques – how much food is needed, what is the perfect mix of food and what about the beverage selection???? All this made me think about…you got it….supply chains. The barbeque dilemma is a microcosm of our supply chains.

• Demand sensing – this hinges upon who we invite, their ages and their preferences…or our belief in what they “want” to eat. Do we have a large carnivorous group? Do they prefer hamburgers or hot dogs…what about chicken and ribs…..what about fish? Ar they vegetarian? What about kids? What kinds of cheese do they want on their burgers? Do they prefer mustard or…gag…ketchup on their hot dogs? We naturally calculate and try to determine what demand we might get from our customers…aka guests. Add to the equation potential desire for organic, low nitrate or hormone free options. When we go to the super market, we are doing some forecasting based on what demand we believe, our customers want.
• Inventory Optimization – When all the food and goodies have been purchased, we also begin with inventory strategies…how much do we leave in the refrigerator/freezer (aka raw materials), how much do we throw on the grill (aka WIP) and how much is sitting on the tables ready for consumption (aka finished goods). Some of this inventory has a shelf life – try not to leave out potato salad in the blazing sun for 2 hours….As we work the grill we try to constantly gauge the demand, the pull if  you will of what we are manufacturing. Should the grill be going at full capacity? How many finished goods do we really want to let sit on the table?
• Demand Shaping – As the grill is working…and no one is eating the chicken…do we start “promoting” how great a grill master you are, especially with chicken. Grilled just right without over drying the chicken. Oh and I just picked up the greatest barbeque sauce from South Carolina that I let this chicken marinate in for 48 hours….
• Reverse logistics – well I will not get into this…but think about the accessibility of facilities….

I realize that most people tomorrow will not think about supply chain and the barbeque, but maybe for a split second tomorrow think about supply chain best practices and how they apply to your barbeque.

Just think, if you could get historic eating habits of all your invitees, coupled with some analytics of trends and consumption habits and you could purchase the right amount of food and the right mix. Having some manufacturing processes in mind you could ensure that once the burgers, hot dogs, chicken, etc that come off the grill end up right on someone’s plate for perfect fresh consumption. You would then ensure a fantastic experience with no left overs…oh wait maybe the leftovers are what make the barbeque fun for the hosts!

Happy  4th of July to all!