14 December 2017
For many, Christmas is a period of indulgence and extravagance, characterised by a significant surge in spending as families prepare to celebrate the festive season. With no sector remaining untapped – from beauty, to clothing, to food & drink – for many retailers, the run up to Christmas is the most profitable time of the year, generating as much as 80% of annual revenue in the space of a few weeks.
Thus, a successful Christmas is often fundamental to an organisation’s success, or even to its continuing existence, and it needs to be fully prepared for the season’s trials and tribulations. To avoid consumer disappointment, a damaged reputation and falling revenue, you need to prepare and plan well in advance, so if you’ve not already planned for Christmas 2017, it’s too late.
In this blog, we explore the Yuletide challenges facing retailers at Christmas and present our solution for businesses looking ahead to 2018.
Christmas prompts a massive surge in demand as consumers frenetically try to fulfil Christmas wishlists, presenting retailers with the challenge of forecasting the level of this demand accurately. Every year reveals a must-have toy or product and organisations must anticipate the volume at peak to prevent a stock shortage and disappointed customers. No retailer wants to see empty shelves and lost sales!
The issue of demand is amplified by social media, as its reach and influence shapes customer appetites more dramatically and rapidly than ever before, making adaptable planning and an agile supply chain ever more essential.
The shift towards online shopping presents further challenges for retailers. With stores reporting a decline in traditional footfall sales but an increase in online orders, sustaining delivery promises across omni channels becomes a significant logistical challenge.
As businesses battle to defeat their competitors with better offers of delivery – “Free Next-Day Delivery” or even “Same-Day”, it’s essential to manage customer expectations and retain a realistic view of what is achievable within the current supply chain model. Traditional retailers who have branched out into e-commerce are particularly tested during peak periods, as they often lack the experience and expertise to effectively address their online and offline channels simultaneously.
Similarly, forecast inaccuracy can result in warehouses filled with surplus stock, putting pressure on working capital and increasing the risk of write offs. Some businesses create agility by keeping inventory in the supply chain to cope with variability, yet in the lean paradigm, inventory is waste. When it comes to inventory management during a peak period such as Christmas, it’s a critical balance to be stuck between meeting customer demand and employing a lean supply chain to enable agility, responsiveness and ultimately, profit.
Despite the monumental increase in pressure on retailers in the lead-up to Christmas, customers still expect the same level of service and offer no respite if promises are not fulfilled, whether that’s expected availability or delivery of products. Businesses won’t find themselves with sympathetic customers; they’ll find themselves with lost sales and a damaged reputation to boot.
The savviest retailers are using Integrated Business Planning (IBP) to alleviate the short-term strain on the supply chain during the festive shopping season, by taking a long-term view and planning well in advance.
With IBP, an organisation can create an integrated view of the operational plans and planned capabilities across the entire business over a 24 to 36-month rolling horizon. This provides retailers with the ideal platform to anticipate trends, peaks and troughs, and to align and design their supply chain to be able to deal with these at optimum cost in plenty of time. Organisations which have developed an effective IBP process use it to plan for uncertainty by developing multiple scenarios which can then be “pressure tested” in advance. Thus, there can be a “Plan B” and even a “Plan C”, which is executed if demand doesn’t eventuate as planned.
IBP can revolutionise the supply chain by encouraging collaboration across all aspects of the business to produce a realistic demand plan, based on shared data. This collaboration is crucial when it come to the frenzy of Christmas, as pressure and customer expectations reach peak levels. There is an open and honest exchange between the sales and marketing team, the supply chain and the retailers to prevent customers being promised goods or services that can’t be delivered, through the consistent exchange of information.
Over the past decade, IBP has evolved to embrace supply chain collaboration – this is where the IBP process is integrated up and down the value chain. Imagine a collective mindset of delivering superb customer service, at a fraction of the competitors’ costs, enabled by a seamless flow of demand information.
One of the key benefits of the IBP demand review is the extended horizon that allows greater visibility and alignment of key promotional and shelf-planning activities. When this information is shared with the supply planning team and manufacturers, plans along the supply chain can be aligned and outcomes optimised. Supply chain collaboration can have a major impact on performance levels. In fact, it can reduce operating costs by up to 50% at the same time as improving customer service levels. The sharing of information leads to improved understanding between the supply chain partners and improved forecast accuracy; this reduces the cost to supply and ultimately results in a satisfied customer.
This information is in part, derived from ‘big data’, and affords organisations greater forecast accuracy, as predictive analysis is refined using corresponding tools such as modelling and sophisticated IT systems. By identifying hidden patterns and interpreting early signals, companies can anticipate future customer behaviour to inform forward business plans with true knowledge. By understanding what the customer wants and is likely to want in the future, businesses can stay a step ahead in terms of meeting customer demand, with faster response times and shorter lead times.
Big data also has a role in optimising a lean supply chain, especially in transportation logistics, both in delivering raw material or shipping out products. Advance analytics give organisations the ability to analyse weather patterns and forecasts, highlighting events that might cause delay in supply chain such as tornadoes, earthquakes and other natural disasters. Based on these statistics, companies can then form contingency plans – identifying back-up suppliers, for example – to enable them to continue to meet Christmas operational targets.
In a modern world, where excellent service is demanded but brand loyalty is either non-existent or driven by convenience, it’s become ever more important for businesses to meet consumer expectations, especially at Christmas. Whilst it’s too late for 2017, integrating IBP across the retail supply chain in preparation for 2018, will place retailers firmly on Santa’s ‘Nice’ list!