That’s why we asked three leading planning professionals for their advice on how to manage the current disruptions. They are battle-tested veterans who have worked through multiple recessions and crises.

They covered five key topics: collaboration, transparency, agility, continual risk assessment, and predictive analytics.

Participants:

Pat Bower: Director of Demand Planning & Customer Service, Combe Inc.

Andrew Schneider ACPF: Transformation Senior Program Manager, Medtronic

Eric Wilson CPF: Director of Thought Leadership, Institute of Business Forecasting

Collaboration

Pat Bower: “As consumer demand peaks due to panic and pre-buying – and the supply chain has lots of weak links at this time – daily collaborative, cross functional discussions help manage all of the issues with a unified plan. This is triage – not planning per se.”

Andrew Schneider: “Social distancing has never been a problem for some in the demand forecasting profession, the issue is getting those people in other functions to engage more and leveraging this opportunity with virtual collaboration.”

Eric Wilson: “IBF research shows 41% are now holding S&OP meetings once a week or more frequently. This is because active communication and higher levels of forecast accuracy go hand in hand. Especially during these times, it is important to have feedback from other functions more frequently and work towards a consensus forecast. We will be wrong, but it is important to be wrong together and have everyone in the organization operating off of the same assumptions”.

Useful resources on collaboration:

• Cross Functional Alignment in S&OP
• Collaborative Planning
• Understanding Functional Mindsets In S&OP

Communication & Transparency

Pat Bower: “Communication has never been more important. The best conversations between supplier and customer should be what is the “minimum” you need (on a weekly basis) so as to not bullwhip the supply chain. This may require that you get into the very uncomfortable position of having all your finished goods run out the door – but pragmatic conversations allow you to be relevant to your suppliers.”

Andrew Schneider “In a pandemic, companies need to address the concerns of internal and external stakeholders. Consider the communications you need to make to your customer base. Not only do they need to hear from you, you need to understand what they are going through so you can incorporate that information into your forecasts and plans.”

Eric Wilson: “It all boils down to the simple fact that with proper communication between stakeholders and external suppliers, more creative ideas can be brought to the table, thus improving forecasts and responses.”

Useful resources on communication and transparency:

How To Present Forecasts Clearly To Stakeholders

Getting Valuable Data From Your Customers To Include In Your Forecasts & Plans

Being Agile & Willing To Pivot

Andrew Schneider: “Really dial up your demand shaping and be a business influencer as well as a business analyst. We may be doing less demand planning and more demand sanitation services – cleaning data, stripping out information from data, as well as analytics. We may be providing different brokered services at the moment that may change and morph.”

Pat Bower: “The focus should be on the most strategic and/or profitable product lines to fulfill.  You also need to assess quickly where the marketplace will be after the run on inventory in retail. Consumer behavior will change in the post Covid-19 world as we enter recession. Don’t over or under react but see what the next 2 or 3 weeks has for us maybe before you make large adjustments to your plans.  We are still smack dab in the middle of it – we don’t know yet. Take a breath.”

Eric Wilson: “Supply chain disruption is likely so consider back up supply chain alternatives in advance while considering the extent to which supplies could be replaced with those from another supplier or location.”

Useful resources on agile planning:

Demand Planning During A Recession

5 Rules For Adaptive Supply Chain Planning

Continual Risk Assessment

Andrew Schneider: “Classically we do segmentation in a univariant format… having a blended approach is good in normal times… in these times what I would suggest is having risk oriented ABC analysis in addition to ranking where or what items you have that are high risk.”

Eric Wilson: “According to responses to IBF surveys, the majority of customers are reducing their outlook for the next 3 months by 25% to 40%. At the same time staple items and stay at home type items are projected to increase by 15% to 20%.”

Eric Wilson: “Stress testing and scenario planning is critical during these times. Doing what-if scenarios with different demand scenarios and probabilities is key. Consider what you are trying to solve and what variables and drivers impact that, then war room potential options and outcomes.”

Pat Bower: “Times like this help you identify weaknesses in your supply chain. Knowing these weaknesses allows you to identify and manage them. You can manage these weaknesses with dual sourcing, carrying more inventory of raw and pack, on shore supply lines, etcetera.”

Eric Wilson: “Businesses must conduct due diligence in assessing challenges such as crucial suppliers, ability to meet customer demands, IT issues and cash flow problems in order to find solutions to any supply chain problems.”

Useful resources on Risk Management

3 Scenarios to Plan For To Mitigate Supply Chain Risk

Predictive Analytics & Probabilistic Planning

Predictive Analytics & Understanding Your Customer

Eric Wilson: “Understand your customer (who, where, and why). During these times it is essential you better understand your customers, their buying behaviors, and how they react.  These are key components of predictive analytics and is important to pivot more towards predictive analytics if you have not done so already.”

Andrew Schneider: “Keep calm and plan on – we are a ways away from being able to change our data streams from the past – what we can do is extend consumption horizons, manage the increases in variability. Just don’t overreact and make sure you understand the data you have before you extrapolate it.”

Eric Wilson: “Right now driving while looking at in the rear view mirror is not going to work. The past no longer looks like what we are going through now or what we’ll see going into the future. We need to start evaluating external data and better understand drivers and your customers using new predictive analytics forecast methods.”

Pat Bower: “This is essential in the “what’s next” part of this mess. What happens after Covid-19?  I.e. are your consumers the ones that will suffer most in a bad economy? You can only extrapolate this by looking into all your market research and getting real intimate with your consumer. This may mean you buy into more specific consumer or market research, leverage your direct to consumer to poll your user base, put consumer response cards in your products …  knowing your consumer will matter as you re-tool your promotional spend. Maybe you’ll discover you need to shift your marketing spend to consumer from trade or shift to digital marketing.”

Andrew Schneider: “If you look for a silver lining to this, it really is a dry run of automation and predictive analytics. You can look at that with an optimistic lens to go from descriptive analytics and reactionary rear view mirror extrapolation… and really get to the point where you have different input streams and a real handle on predictive analytics.”

Useful Resources On Predictive Analytics & Understanding Consumers

The Impact of Coronavirus on Your Forecasts

What Is predictive Analytics

4 Phases of Predictive Analytics

Predictive Analytics: Real Life Use Cases

In the past few months, the world has been keeping a very keen eye on the developing COVID-19 epidemic-turned-pandemic. How will the disease be contained? Will this just be an Asia-Pacific issue? Oh, okay, now Europe is experiencing similar challenges in stopping the spread of the disease. Now international borders are closing. Will it spread to North America?

Okay, WHEN will it spread to North America? In my industry, aviation, the spread of the virus and its significant impact have been studied with a certain amount of incredulity. How could an industry that has seen such explosive growth in the last few years suddenly be pondering frightening worst-case scenarios? I am sure that our industry is not unique in these stunned feelings.

That’s how Black Swan events work. They force you to consider worst-case scenarios that would have been unthinkable just months or even weeks prior. They surprise us with their breadth and depth and leave us scrambling to make sense of a “new normal.” They are, by definition, unable to be predicted. So what does this unpredictable, unprecedented time mean for the demand planning function in an organization?

The short answer is that demand planning is needed more than ever during a Black Swan event. The organization is waiting on pins and needles for the resident experts in market and customer behavior to weigh in on what this unprecedented event means for the business. How far does the organization need to cut back on expenditures? Will reductions in headcount be required? Do we need to determine creative solutions to continue to meet customer requirements in an environment where economies of scale are not able to be achieved? The analysis of these and many other issues hinges on an evaluation of the demand plan. What follows are some insights into how demand planning should move forward to provide this business support in a time when many tried-and-true inputs no longer make sense.

Don’t Panic

There will be significant pressure to complete all analysis of the future demand plan very quickly. This makes logical sense, given all of the critical business decisions predicated on it. There is a balance to be struck here between taking the time to properly consider this new business environment and waiting too long to take action. Many industries, my own included, are going to find that the information trickling in from customers and market analysts is going to be incomplete, speculative, and sometimes contradictory. Your customers are likely in the same position as your organization: uncertain of where to proceed from here and receiving incomplete information. This is where the specialized knowledge of the demand planning team is going to become crucial to the organization. Demand planning is the function best equipped to review the existing dataset and make educated conjectures about what may happen in the future. We do it daily, even when there is no global crisis, and are comfortable with the ambiguity. The organization will need level heads to lead in a time of uncertainty, and demand planning can provide this leadership. Stay calm, use the data at your disposal and your accumulated knowledge, and push back if the time parameters to complete the work with efficacy are unrealistic.

Drive Consensus

Black Swan events are a pivotal time to involve all stakeholders in the construction and finalizing of the demand plan. Unpredictable times are not made for the often idealized “nerd in the corner,” who can whip up a fancy algorithm and predict the future. These are events that are, by definition, unpredictable! While some modeling may help set the context, specific market, customer, and industry knowledge is going to win the day. Given the extraordinary circumstances and potential decreases to demand that may take the organization well below its previously targeted operational and financial plans, additional, supply-side considerations may also need to be considered.

In a “normal” environment, everyone in the organization seems to have an opinion about what the demand plan should be. In many instances, those insights are grounded in fact and when shared with demand planning are a catalyst for a better demand plan. During a pandemic… maybe not so much. Demand planning could encounter a fair amount of emotional pushback as they present the facts as they are known today. There could be “sticker shock” at the demand changes proposed, or even a lack of feedback from stakeholders as they reel from the amount of uncertainty being presented and the proposed length of time to recovery. There could be a hesitancy to provide insights or align on the proposed changes, and that’s born out of fear. It is the role of demand planning to assuage those fears with the available facts and help drive the stakeholders to a decision they can feel reasonably comfortable with under the circumstances. Now more than ever, the demand plan does not just belong to the demand planning organization – it is the plan that runs the business and all stakeholders should feel some level of ownership.

Document, Document, Document

Demand planning is no stranger to the often non-value add phenomenon of perfect hindsight – after an unexpected event, there will undoubtedly be some members of the organization – perhaps even within the planning function – that will begin to ruminate on why we didn’t act faster or clearly see the signs of this monumental event headed our way. The pitfall of 20/20 hindsight is, rather unfortunately, another tenet of Black Swan Theory. It’s difficult to rationalize how something so major could have blindsided us. This is why the documentation of demand planning assumptions is so key – both in “normal” times and even more so during these abnormal events. As the skies begin to clear, organizations sometimes develop amnesia about how cloudy the weather once was.

Demand planning is often called upon to be the historian of the organization – reminding the various stakeholders of the decisions that were made in the past and why we made them. As industries recover, this historian function will be ever more important as we become farther and farther removed from the initial crisis. In order to move forward, the organization may need a clear picture of where we have been that is free from any Monday morning quarterbacking.

Stay the Course

Organizations around the world and across many industries are finding themselves facing a future they were not expecting even a few weeks ago, and will be looking toward their demand planning teams to help them make sense of what future demand will look like. It is important that we adhere to our established processes as much as possible, and remain a calm and objective voice of reason for our stakeholders. You will be called upon to make sure the organization stays focused, doesn’t get caught in a victim loop, and takes action as appropriate. Finally, be ready to remind the organization of where it has been once the crisis has been averted. In these ways, demand planning can continue to provide value and context to the organization during uncertain times.

Hang in there, everyone.

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When I wrote this article at the end of 2018, the equity markets were plummeting, threatening to enter a bear market. We’ve since bounced back but that dramatic drop serves as a warning shot, letting us know we’re approaching the end of the current economic cycle.  With economic expansion cresting, unemployment at historically low levels, and with the Federal Reserve considering interest rate adjustments to extend the span of this historic GDP growth, it is only a matter of time before the economy cools off.

And with two-thirds of the US economy based on consumerism, the impact of any economic decline will disproportionately impact consumer products and brands. I have worked three recessions during my career in demand planning, so I know a little about what to expect. I also know that each recession is unique. The recession of 2008 was different from 2001, and both were different from 1991.

Some are bubble-influenced, like the housing bust of ’08, while others are simply soft-landing hangovers from rapid expansion like in 2001. Despite differences in the underlying causes, there are common recessionary themes that impact the demand curves of most companies. Knowing these commonalities may help you prepare for the next downturn.

We’ve Been Here Before

There are some common themes and generalizations about the way products, consumers and retailers interact during a recession. One way or another, a recession will alter your demand curve. Your customers—whether large retailers or OEM parts suppliers—will cut their forecasts, reduce their inventory, and become more pessimistic in their forecasting of the future. Like you, they will not get the timing right, and the result will be fits and starts in their ordering patterns.

And if you use point-of-sale data (POS) to help you forecast demand or estimate trade inventory, you will start to see a disconnect or a divergence between POS trends and orders from your customers. There will be a lot more “noise” in the data and a true demand signal will be harder to discern.

So why the noise? Well, to start, if history is a guide, activity relating to discounting and other retail trade will increase, and customers will offer more frequent pricing reductions, or other ways to stimulate demand on either the virtual or physical shelf for the value conscious consumer. Of course, your competitors will do the same, and the result will be a much more volatile demand pattern, which will make planning for both supply and demand more suspect. As you try to navigate these rough waters, it will be helpful to openly discuss the potential impact of scenarios such as these. This will allow for at least some understanding of shifts in key performance indicators (KPIs), such as buffer inventories increasing to handle the greater demand volatility and forecast error.

During a recession, value becomes a dominant consumer theme. Cash stressed consumers will seek the best price. Generally, this results in both private and store brands, as well as off-brand or commodity products, picking up market share as consumers and customers move towards value. From a planning and S&OP perspective, your units might stay the same, but your revenue may decline due to a shift toward lower-priced goods.And with a mix shift in the products consumed towards value, strategies for competing or participating with products offering better value to the end consumer should be part of your S&OP decision-making process.

Managing new products will present a challenge as consumers are less likely to expose limited financial resources to try a new product. When my employer launched a new hair coloring product in 2008, it began to founder. Our initial demand sensing of POS results reflected a serious gap to expectations. We realized we had to take drastic measures, so we gave away free product—offering “free-bates” to help stimulate trial activity among our consumers. It worked.

Noting the economic downturn with historically high unemployment, we also focused our advertising creative on how this product might help in a job interview, to directly appeal to the unemployed segment. This too also helped drive trials and interest in the product. The key learning is that in anticipation of a sure-to-come downturn, it is reasonable to expect your customers or consumers to be hesitant to shift to—or even buy—new products without some compelling reason to do so. And to the extent possible, it would be wise to anticipate this type of dynamic throughout all your new product planning processes.

It is not just the consumers that are averse to new products—traditional brick and mortar retailer acceptance of new products will also be a challenge. These retailers tend to “batten down the hatches”, preferring to lean into known brands and products and lower-priced store-brand or private-label offerings during recessionary times. Not only will this make obtaining new product distribution more difficult, but it is likely to result in some marginal items being delisted. Such activity indicates why examining risk in your product portfolio is central to planning before and during a recession.

Similarly, you are likely to notice a shift in your product mix. While lower priced offerings might sell better, so too will larger-size/better-value offerings. Bonus packs, upsized offerings, on-pack couponing, multipacks, and similar strategies will prove themselves to be smart, tactical alternatives for increasing consumer interest at shelf, and for holding ground against private-label offerings. Being prepared for this potential mix of shifts—if only on paper—will help you improve your reaction time if and when response tactics are called for.

And finally, trade inventory will drop – if only because your customers will lower their forecasts. For example, if your customer keeps four weeks of supply based on weekly demand of 100 units, then normal inventory would hold 400 units. If the forecast is cut to 90 units per week, however, the inventory target will drop to 360 units. In short, you should be prepared to address unexplainable drops in your customer’s inventory that are not aligned with historical trends.

Channels Will Shift

In what is probably the most obvious of statements, sales volume levels with mass discounters, club stores, and dollar outlets tend to swell during a recession, while specialty outlets will see a decline. Estimating and improving relationships in recession-friendly channels—prior to a downturn—may help you weather the economic storm. Consumers have always been less willing to pay a convenience-level premium during tough times. When I worked with Snapple during the 2001 recession, fewer people made street-level lunch time purchases, preferring instead to buy multipack offerings of our product in grocery stores as they “brown-bagged” their lunches as a way to reduce day-to-day expenses. Interestingly, these multi-pack products were very sensitive to price-based promotions and sold tremendously well in discount grocer and big boxes outlets when on deal, a huge channel shift away from convenience stores and local delis. As we were constantly digging deep into our point of sale and shipment data, we were able to react and alter our sales and promotional strategy during that particular recession. And while we are discussing channels it remains to be seen the impact a recession will have on the emerging e-commerce channels. These have vastly expanded since the last downturn and the impacts are hard to anticipate. Because of this unknown impact, more so than ever it is imperative for consumer goods companies to sense any shift in channels with consumers.

6 Rules When Planning For a Recession

While some of these recessionary effects may seem like broad generalizations, they are merely the most common impacts. The reality is that recession hits each business in unique ways. So where can you find guidance to determine how to plan better? What can you do before a recession? Here are some action items to consider.

Dig into your own data: Burrow deeply into all institutional data retained from prior recessions and try to curate the facts into an economic narrative of sorts. Find old S&OP content, consensus reporting, or ask veterans of the business their opinions on the subject. These will all offer some guidance for the future. But make sure your analysis is not simply “What happened?” Try to incorporate all the dynamics of your firm’s reaction—an assessment of what worked (and didn’t), an assessment of competitor activities and reactions, and maybe even a snapshot of economic indicators before, during, and after the recessionary period. If you don’t expand your analysis to paint a complete picture, you will be short-changing your own research. Wade neck-deep into your own data lake and immerse yourself fully into the past.

Reset your thinking: While most forecasters have a tendency toward a positive bias, force the stakeholders of your operational processes such as S&OP and financial planning and analysis (FP&A) to look at most plans with greater levels of scrutiny and skepticism. Use the results of your own historical data dig to enlighten the discussion. Make upside forecast moves based only on hard facts, not conjecture or opinion. Expect mix shifts in products. Use shorter trending metrics to forecast forward. Work on building different demand scenarios to estimate impact on the business, both top-line and bottom-line.

Examine your product portfolio: Are you thinking of launching a high-priced premium offering sometime within the next year? How will you propose to punch through the economic noise and gain acceptance of your product when consumer dissonance for anything “new” and expensive may be heightened during a recession? Do you have products already at risk that may go under during a recession, or is there some way to make such items more desirable to retailers or resellers from a margin perspective? Ask yourself tougher and harder questions about your product portfolio to prepare for the inevitable downturn. Prepare your commercial innovation backlog with tactical options such as bonus or instant redeemable coupons, so you can be agile in the wake of declining economic results.

Use predictive analytics (PA) tools to see how your demand curve reacts to differing economic stimuli: Some of the PA products leverage large econometric databases. Prepare to align emerging economic factors against your own POS or shipment histories and look for correlations, latency, and inflection points. Look for products or product families that are counter–cyclical and may see an uptick and plan to leverage this dynamic. Understanding the leading economic indicators and their latency on your business will help you plan better in good times and in recessionary times.

Monitor key indicators of economic activity: During both the 2001 and 2008 recessions, my planning group provided an informal analysis of 25 or so key economic indicators—from housing starts to unemployment to consumer confidence. We looked for the aforementioned correlation and latency impacts to determine what items were impacted by specific economic indicators and how long it took these results to manifest themselves within demand Start tracking these indicators now.

Bring it to S&OP—now: Sooner than later, proactive planners should escalate conversation about recessionary contingencies to the executive review phase of their S&OP processes, since the topic is a strategic issue that needs to be part of the executive conversation. Create a one-slide summary of key factors likely to have the greatest impact on your business and track them in each meeting.

There is no magic to understanding and navigating the potential impacts of a recession, whenever the next one may come. The solution is the hard work of becoming intimately knowledgeable about past impacts on your business, tempered with updated knowledge of changes in your business model (such as the growth of e-commerce) and in your product offerings.

Bottom Line

When you’ve weathered as many recessions as I have, you learn what to look for and you recognize promising responses that have worked in the past. Some of the most interesting dialogues I ever had in the S&OP process occurred during difficult economic times. Demand planners and S&OP leaders should take action now to initiate forward-looking conversations about recessionary impacts. It is a fiduciary responsibility of the planning role to facilitate this difficult discussion.

This article was first published in the Summer 2019 issue of the Journal of Business Forecasting. To get the journal delivered to your door quarterly and a host of other benefits including free workshops, discounted events, and access to the entire IBF knowledge library, become an IBF member. Join the IBF tribe here.