Demand Planning with Unprecedented Inflation and Economic Headwinds
The dirty “I” word has reared its ugly head. According to usinflationcalculator.com, The US Inflation rate hit a new 40-year high in May 2022. This new era of inflationary pressure brings with it a depression of consumer confidence that poses significant implications for demand planners, especially those dealing with higher-end, luxury, and non-essential purchases such as furniture. The effects of inflation on consumer purchases are particularly heinous as suppliers and consumers continue to grapple with COVID-related logistics and supply chain inventory and pricing pressures. While preferences may change and brand loyalty may wavier on lower-priced purchases, the market for high-value purchases will certainly slow down. That will require demand planners to dig deeper and possibly implore more complex analytics to evaluate their products’ demand level and appropriate inventory. High-end purchases such as automobiles and dining room sets alike will feel the pinch as consumer credit becomes more difficult to get, consumer confidence wains, and interest rates continue to soar. The fight for consumers’ discretionary spending will become fiercer as inflation’s impacts spread to virtually every business and category.
Collaboration, Creativity, and Consensus Building across teams for accurate predictions
Typical demand planners and/or DP Software look at a mix of internal and external data related to sales history, consumer confidence, consumer behavior trends, market data, and price elasticity – all of which are changing rapidly at a remarkable pace. This rapid and, for many, unprecedented set of changes pose significant risks to demand planning and forecasting accuracy. Even the best inventory management software will have difficulty making accurate predictions as we enter this period of massive flux that bucks the historical models built over the past several decades. These times will require more collaboration between demand planning, sales, marketing, finance, and supply chain teams to prevent those cross-functional disconnects. Increased creativity, analytics, and consensus building will be necessary to plan the same items in a vastly different way than planned a year, two years, or even five years (pre-pandemic) ago.
As difficult as they may be, the quality of your demand forecasts will directly impact the level of customer satisfaction and, ultimately the bottom line and financial goals of your company’s health. What we know for sure is that using the same old tools and methods that have been employed in recent years will be a fiscally irresponsible recipe for disaster. Now is the time to re-examine your data and methodologies from soup to nuts to maximize your sales to inventory ratio and help keep your position as solid as possible through these turbulent times. My advice to the supply chain and demand planning professionals that thought they had “seen it all” through the COVID and supply chain disruption rollercoaster of the past two years is to tighten up that seat belt and buckle in for what is for sure going to be a bumpy, and potentially long, ride!
Submitted by Diane Narwid, the VP of Merchandising at HomeRoots who has over 25 years of retail buying experience. HomeRoots unites wholesales product inventory and brick-and-mortar businesses on a single platform allowing buyers to expand their businesses, reduce costs and receive the highest quality products for the end consumer. HomeRoots makes the B2B shopping experience as easy as B2C.