November 2012 | Commentary | 3PL Line

Holiday Rush Planning: How to Mitigate Risk in a Volatile Market

Tags: Risk Management

Lorcan Sheehan is Senior Vice President of Marketing, ModusLink Global Solutions, 781-663-5000

In today's globalized supply chain, extended manufacturing and transportation lead times dictate that retailers complete most holiday season planning in June and July. These plans are based on the best available intelligence at the time, including consumer forecasts, retailer promotions, and the competitive landscape.

Within the build window for seasonal holiday demand, the industry is particularly sensitive to potential demand shocks in the system. A prime example occurred in September 2008, when original equipment manufacturers (OEMs) and retailers were preparing for another busy retail season.

Although there had been signs of a slowdown in growth, nobody was prepared for the dramatic drop in consumer confidence that followed the Lehman Brothers collapse. Supply was essentially fixed for the season, but consumer demand diminished in the new environment of economic uncertainty. The only response to this imbalance was deep discounting at OEMs and retail stores in an effort to move the excess inventory.

Lessons Learned

From that experience, businesses learned a number of lessons about mitigating supply chain risk, including:

  • Increase collaboration between retailers and OEMs. Both parties now realize the benefits of closely aligning forecasts and promotional plans with key suppliers and channel customers. Following the 2008 fallout, some retailers looked to reduce their in-store brand range, allowing them to work more collaboratively with fewer, larger suppliers.
  • Migrate from point estimates to range forecasts. While planning systems thrive on the detail associated with an absolute forecast, such estimates are often wrong or just plain lucky. Working with frequently updated range estimates provides more intelligence on the expected minimum demand levels, and the flexibility levels required to meet potential peaks in demand.
  • Postpone final assembly. Many companies have seized upon the benefits associated with postponed final product assembly and packaging. This has the effect of reducing planning process complexity—as well as overall inventory levels required—and improving supply chain response time to changes in the channel mix.
  • Tackle product proliferation. When companies create many product variations, they often seek innovative ways to support them through postponement and managing inventories across multiple channels, frequently supporting additional variations and accessories through complementary online channels.
  • Address value-recovery channels proactively. At the end of a product's lifecycle, it is too late to attempt to find a home for excess inventory. Many brands now embrace the concept of a controlled secondary market for their excess or refurbished products, and proactively move excess product into these channels as soon as it becomes evident that initial forecasts are unlikely to materialize.

Diligence and Agility

These practices do not eliminate the need for diligence in the planning cycle. But they do increase the level of agility with which businesses can adapt to changing forecasts—and every company can benefit from that.