Businesses run in an environment of change and evolution that has multiple dimensions – Economic, Sociological, Political, Competitive, Regulatory, and Technological. At the very heart of the drive for business success is the customer/consumer demand for the company’s products. Indeed, a company’s revenue is a mirror reflection of said demand and all factors that affect it. Understanding consumer behavior, therefore, is of paramount importance.

Demand for a company’s products and services ebb and flow with a complex mix of seasonal, cyclical, and life cycle effects. As Forecasters and Demand Planners, how do we best structure our forecasting and planning efforts in this fluid and often volatile environment?

1. Gather Information From Market Facing Colleagues

This is to discuss ideas with those who are interacting both directly and indirectly with customers and consumers. We want to explore their experience and thinking regarding why and how purchase decisions are made, and what they think the most important considerations are in the purchase decision process. Marketing, Sales, and Product Management professionals can be especially helpful in their perspectives.

The primary purpose of this is to not only evaluate key factors that may help us to forecast, but to explain the variation in patterns of demand that have been historically experienced. Analytics methods – both qualitative and quantitative – are valuable tools that help characterize and explain purchase behaviors of both customers and consumers.

2. Review Qualitative Inputs

Review the findings from our discussion with our colleagues in Marketing, Sales, and Product Management. This can be a collaborative forum or meeting/s that happen ahead of the formal S&OP process. Organize their insight about sources of demand variation and gain consensus from the various stakeholders. This is a forum for feedback and exploration that can refine the conclusions, challenge our hypotheses, and prevent misconceptions about customer and consumer behaviors.

3. Create Scenario Models 

Once we have an understanding of the different demand drivers, we can generate scenario models that incorporate said demand variables. Scenario models help us understand how demand for our products will look in different situations that may arise in future.

For example, we could generate models with unique assumptions regarding periods of economic growth, economic recession, business cycle stages, product lifecycle stages, demographic shifts, population rates of change, product pricing, supply chain issues, business sector consolidation, and more.

Pick the assumptions that are relevant to your business and you’ll have an understanding of what could happen in different scenarios. Adaptation to rapidly changing conditions means that we should not think of purchase behavior from a steady-state or static perspective. We need to have a portfolio of explanatory and forecast models that we can access to quickly pivot and adapt.

Conclusion

It is important that we understand our customers and consumers. We should understand their motivations, needs, purchase decision process, and probable response to changing conditions affecting them. We should create scenarios of behavior under a variety of alternative assumptions.

We should be observant. We should be ready. We should be prepared. The above approach improves the performance of demand forecasts, supporting the company in its efforts to increase operational and financial performance.

It is only October and already it is beginning to look a lot like Christmas. For many people, they call it the holiday season – for business forecasters, we call it seasonality. For some companies, the next few months can see over a twenty or thirty percent increase in their average sales or even make up sixty percent or more of their total volume for the entire year. With so much at stake, having an accurate plan or forecast is critical for any business to meet customer demand.

So, as we go into this holiday season, what are the key factors to consider when planning for this all-important time of year?

More people will stay home this year

No, we are not saying sales will be down but there is an obvious trend that will continue, and that is more and more consumers will be using their computers, tablets, or smart phones to do their shopping this year. When comparing current trends to the prior year, we can see 4% – 6% more consumers deciding against the hassle of finding a parking space, fighting the crowds, and waiting in checkout lines. Instead, they are shopping at home in their PJ’s. Organizations such as the NRF (National Retailer Federation) are forecasting that online spending and other non-store sales will rise 11% to 15% this season.

There are a couple of impacts caused by these trends that we need to keep in mind. First, back to this thing we call seasonality: historically, back in the ‘good old days’ before Amazon, stores would need to have inventory ready by mid-October. For distributors or manufacturers, our holiday season would start in September and run through Thanksgiving. You may have got a small replenishment but, for the most part, the bulk of our sales came in the third fiscal quarter. The current trend of online sales is also skewing our traditional seasonality and we cannot rely as much on the prior year’s seasonal index, and need to adjust it every year according to these new trends. Store shelves are being replaced by distribution centers with lower buffer stock. What’s more, we are seeing smaller orders with greater frequency, and sales later and later into the season creating completely different seasonal patterns.
Next, consumers continue to demonstrate their preference for making purchases through a variety of channels including in-store, online, and click and collect. According to the International Council of Shopping Centers (ICSC):

• 90% of holiday shoppers will take advantage of omnichannel retailers with 40% of them buying online and picking up in-store
• 81% of those shoppers plan to make additional purchases when collecting their item(s)

For planning, this means not only forecasting what and when the consumer will buy, but adding the complexity of where they will buy and where you need to have it available.

The holiday season will be longer than prior years

Not only do planners and forecasters face a challenge in the season starting earlier, we also need to consider where the holidays fall in each given year. This year, it appears we have one extra day of shopping. Christmas falls 32 days after Thanksgiving this year, one day more than last year. It is on a Monday instead of a Sunday, giving consumers an extra weekend day to complete their shopping. This may not seem like much to some industries, but for those in the retail and distribution sectors who look at year over year comps, this is a big opportunity.

Not only is there an extra day at the end, trends are seeing consumers buying earlier – and this year, hopefully more often. While November and December remain the anticipated busiest shopping months, ICSC estimates an uptick in the number of people planning to shop before Thanksgiving at 66%—with almost one third (27%) starting as early as August. If you are only learning this now, it is already too late.

Planning must evolve beyond historical models given changes in consumer behavior

Over all, with the increase in online sales and the expected extension of the shopping season, it all adds up to the potential for more retail sales. Bear in mind that 46% of shoppers say they plan to spend more this holiday season. No matter who you poll or which report you look at, most forecasters have this year’s sales increasing by 3% – 5%. At the same time, what we are also seeing for planning is that it is not as easy as taking last year’s number and just adding something.

We are seeing new seasonality, longer selling seasons, increased complexity of distribution, and our job getting harder at the exact point when it is becoming more important. Exciting (and challenging) times to be a demand planner or forecaster. Happy Holidays…

Hurricane Harvey will certainly ripple through many organizations’ supply chains for months to come and what they may discover is that this could be costlier than any hurricane of the past. To understand this, we not only need to look at the cost, but also what this may mean for sales.

Historically, hurricanes that hit the United States have led to an obvious slowdown in economic activity right after they occur. We generally see a downturn in other regions that are not even directly impacted by the storm or its flooding. There is also an economic slump with regards to consumer sentiment across the United States correlating to major events; for instance, it is likely that more people stay at home and wait for the catastrophe to unfold. Following this initial negative trend, there is a less obvious rebuilding phase, which leads to an equal, if not greater, economic rebound.

Rebuilding After Hurricanes Drives Economic Activity

Over time, we have consumers and retailers replacing what they have lost and Federal aid flowing into the area, giving rise to an increase in economic activity. Just like the downturn, other unaffected regions feel this recovery as well. These stimulus dollars—compounded by some pent-up demand of consumers—seem to trickle through the economy to other regions that are not directly impacted by the storm and boost sales everywhere.

This is all well and good, but just like in a storm where no two neighborhoods are affected the same—the impact on your business may not follow this perfect trend. You need to look a little deeper at how your business sector reacts during these times and what your consumers’ behaviors will be going forward.

The need for this and to understand sales during and after the impact of such a storm is critical to planning and succeeding. If you overreact to the initial downturn in sales, you may not be properly prepared for the retail storm surge coming when things settle down. If you ignore your consumer behavior, you may be overstocked and all your money may be tied up in inventory.

How To Forecast For Your Industry After Hurricanes Strike

What exactly will occur in your specific market and how will Hurricane Harvey impact your forecast? It all depends. Here are just a few key factors that a demand planner may want to consider because they could impact your forecast and business.

While we may have big winners of this tragedy (if we can call them that), like construction companies and related industries, other sectors are going to feel the storm surge of lost sales and then the aftershock of those sales not returning. Many companies have a distinct summer selling season that a good portion of their sales comes between Memorial Day and Labor Day. This can be anything from drink cups, to outdoor sports, to mattresses. For these sectors, the storm that formed on August 24, 2017, then slammed into the Texas and Louisiana coasts, and stalled there for four days while dumping as much as 52 inches of rain in some parts with consequential flooding that will last well beyond Labor Day. This is losing the entire last week of summer and time and sales they will not be able to get back.

Replenishment of Destroyed Inventory Costs Time And Money

Next, do not forget: it is not just homes but also retailers and manufacturers that need to replenish what they lost as well. As an example, there are an estimated 500,000 automobiles that may have been damaged with many of them sitting in car lots needing to be replaced. Warehouses and retail stores full of products have been flooded and before these companies open back up for business, they will need new replacement products. This will be new channel inventory and a spike in demand for many sectors and products that needs to be forecasted appropriately.

Footfall Decreases

There are still many retailers with primarily brick and mortar stores that rely heavily on foot traffic created over Labor Day weekend sales. These are stores focusing on back-to-school, fashion, or many other consumer products just to name a few. These sectors missed a critical weekend of in-store traffic and as more consumers stayed home, online traffic reaped the rewards. While in-store sales have been trending down for some time, thanks to mega online giants such as Amazon, we will most likely see traditional stores take another hit from Hurricane Harvey. Understanding your company’s omnichannel presence and market share may be equally important as understanding consumer habits during major storms.

Higher Costs For Logistics and Goods

Finally, we cannot kid ourselves. This hurricane is going to cost supply chains and consumers a lot of money. In the impacted area, there are hundreds of factories, warehouses, distribution centers, and major ports. Sixty-eighty key chemicals and intermediates originate from the Texas region and much of the country’s polymers and resins come from this area. Around 10% of manned oil platforms in the Gulf were evacuated, according to the Bureau of Safety and Environmental Enforcement. While the fallout is still being determined, gas prices have risen an average of 23 cents already and it is estimated that they will to continue to go higher. All of this adds up to higher costs for fuel, higher costs for logistics, higher costs for goods, and lower sales for non-essential items for some people. As prices continue to climb and people spend $3.00 or more a gallon at the pump—sectors that rely on discretionary income will continue to see a decline and be hardest hit.

Less Discretionary Selling

For the sectors that have lost the final week of their summer selling season, lost foot traffic for back to school and Labor Day weekend, or have been impacted by higher costs and less discretionary spending—it means estimates as much as $15 billion in economic activity will be missing. That constitutes a 1% drop in total U.S. GDP measured on a month-over-month basis. That said, the government will most likely spend that much in its first round of spending alone.

Impact on Companies Can Be Severe But Impact On Overall Growth Is Minimal

Overall, at the aggregate level, the storm is likely to have a relatively minimal effect on overall economic growth, once we factor in the stimulus effect of the reconstruction phase (estimated depressing real spending growth by estimated 0.3% in quarter three). For your company, the impact may be much greater. The real question should be this: what does it mean to your business and how can you forecast the effect on your sales?

Forecasting this is not only tricky, but it is much like the hurricane: you can end up with a large cone of uncertainty in trying to predict your demand after this type of storm. While we cannot predict the weather, we can better anticipate consumer behavior during and after a hurricane with good tools, data, and skilled business forecasting professionals. If you would like more information, please contact info@ibf.org

We wish for all who are affected by this tragedy, a speedy recovery.