Businesses are in the “business” of planning. They look forward. Every element of an income statement has a forecasted plan – from top-line growth, to how much will be spent on a holiday party.
But a business can plan for only so much unpredictability – and certainly, most cannot put contingencies in place for global catastrophic events. That said, businesses should work to be as precise as possible in their planning, using the best data that’s available to mitigate risk when the unexpected happens.
Inventory planning is a great example. Most companies have forecasting tools in place, but not all realize the incredibly vast information that some internet retailers can provide at no cost to their suppliers to help with both understanding current performance as well as future demand predictability. These tools can and should be incorporated into suppliers’ planning methodologies.
Impact of Coronavirus
The Coronavirus, an incredibly tragic and growing pandemic, has taken the world by storm. Its impact has become widespread – not only impacting people’s health, but their ways of life, ability to travel, and consequently, the global economy.
While China has seemingly (and thankfully) been able to slow the spread of the virus in China, and restrictions are being lifted, supply chains reliant upon China have unfortunately already been significantly impacted by the containment efforts.
Earlier this year, the Chinese government extended the Chinese New Year holiday, hoping that the additional time off would help curtail the use of mass transit and therefore slow the spread. This lengthened holiday meant factories that were due to reopen after the new year, remained closed for a bit longer.
In order to reopen their factories, strict safety protocols were required, such as distributing infection-control masks to employees, taking and recording employees’ temperatures as they reported to work, and tracking their movements from place to place. While certainly a logical move by the Chinese government, it required factories to essentially “certify” themselves, delaying their reopening after the Chinese New Year.
On top of that, while typical annual return of factory employees is 80%-85%, the return rate this year was far lower for obvious reasons. This meant there would be a delay in production not only because of the holiday extension and then being approved to reopen, but also not having enough people to build the product when they did reopen.
Staying Ahead of the Curve
Needless to say, the predictability of a tragedy like this is impossible. But at a minimum, companies with an ecommerce business in the U.S. can mitigate some of the adverse effects of these types of situations, by being as precise as they can with their forecasting methodologies in their normal day to day activities.
Many savvy internet retailers have created various tools and algorithms to forecast demand needs that they are very willing to share with their suppliers. In many cases, unfortunately, manufacturers are either unaware or simply aren’t taking full advantage of these sophisticated tools by integrating them into their own planning.
Internet retailers like Wayfair and Amazon, for example, offer tools that can help manufacturers plan for demand. Some of these capabilities include:
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weekly and monthly forecasts
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multi-month rolling forecasts, which are regularly updated
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forecasting that builds in all major shopping days
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calculations enabled at the SKU level for every SKU in an assortment
Looking in the Rear-View Mirror
In addition to looking forward with forecasting tools, internet retailers also have extremely informative metrics that they share regularly in the form of operational “report cards”, showing both current and past performance.
Weighted In-Stock Rates
Weighted in-stock rates are a more precise measure of true inventory performance than traditional in-stock rates. A weighted in-stock rate more heavily favors best-selling products, and therefore a KPI to be very considerate of as it can more specifically show impactful inventory gaps. If a manufacturer has a 90% fill rate for example, but the 10% out of stock are best-selling items, a weighted in-stock rate could be far lower. And because multiple internet retailers will share these metrics out, each weighted in-stock rate could differ from one retailer to another.
Lost Sales from Out of Stocks
One other insightful indicator that certain internet retailers will share is the amount of lost business as a result of “out of stock” rates. This is meant to demonstrate the significance of having key online items in stock. Unfortunately, the online consumer is demanding with little patience when it comes to waiting for product, so it’s very important that these tools are taken seriously to maximize your overall business and mitigate as much risk as possible when an unpredictable event occurs.
While more precise data certainly can’t insulate from catastrophic events affecting the industry, having these tools in place to augment planning strategies can help offset supply upsets from unforeseen events.
BrandJump and your ecommerce partners can help you interpret these useful tools, contact us to learn more.
