As I write this in September 2021, the UK appears to be hitting peak supply chain challenge. As the constraints of COVID restrictions have eased, difficulties with driver shortages and availability right the way up the supply chain are coming to light.
Talking to firms across different sectors, many had already taken measures to insulate themselves from these not entirely unexpected challenges. Knowing the value of maintaining service levels, they’ve chosen to increase stock-holding to ride out the ‘perfect storm’ of fluctuating demand, supplier unreliability and changing consumer behaviour.
The combination of ‘over-stocking’ to maintain service levels and stock-outs when items are unavailable is a huge cost. Recent research has quantified the total cost of this ‘Inventory Distortion’ worldwide:
- Out-of-Stocks is a total cost of $456.3 Billion
- Overstocks account for $362.1 Billion
- Worldwide nearly $1.5 Trillion of merchandise is in an overstock position – creating a loss in cashflow
What happens when the storm lifts? With so much stock lying idle it’s inevitable that Wholesalers and Retailers alike are going to look to promotions and discounts to move it quickly and release the cash tied up in their warehouse.
However, promotions can be just another thorny problem for planners.
If an organisation’s promotion planning is not up to scratch it creates potential risks:
- Overselling – if the promotion wasn’t fully incorporated into the plan then there’s a chance that the right inventory is in the wrong place when needed, creating stock-outs and service level issues.
- Overstocking in future – if the level of demand generated during the promotion isn’t properly incorporated and accounted for in the demand forecasting model then replenishment actions are working at odds with the aim of the promotion.
To achieve success throughout the cycle of a promotion, it is vital that there is both end-to-end visibility and close collaboration between sales, marketing and the supply chain planning team. Without this, companies run the danger of allowing unknown variables to impact negatively on sales and cashflow. Information on availability, in addition to potential challenges and pitfalls for the promotion must be communicated to sales and marketing. This is only possible if all parties work together in the planning phase.
It doesn’t stop with the plan. Logistics teams need to coordinate delivery of products with distribution partners to ensure items arrive as promised. The best teams go one step further – they use their data to work proactively with their partners. This gives them the capabilities to handle anticipated volumes and they can guarantee to meet promotional needs.
Even the best laid plans can come unstuck if they don’t consider a variety of scenarios that could occur as the promotion evolves. For example, a promotion may experience greater success in some regions and lower in others. Early alignment across marketing and planning coupled with the ability to spot trends and run impact analysis rapidly helps to eliminate these issues. This allows promotions to realise their full sales potential.
Ultimately, visibility across the supply chain coupled with close collaboration creates a foundation for ensuring that promotional campaigns run well. By running well, we mean achieving their financial AND strategic objectives – without generating additional Inventory distortion.
