Earlier this month, the National Retail Federation (NRF) released its forecast of expected holiday retail sales (excluding autos, gasoline, and restaurants) for the months of November and December. The NRF forecast calls for retail sales to increase between 3.6 percent and 4.0 percent, which is a rather healthy forecast for holiday retail sales.  Such optimism is reportedly being fueled by low unemployment levels, robust economic activity and rising stock values across major economies. Once more, the Christmas holiday occurs on a Monday, providing online and physical shoppers an extra weekend for last-minute gift shopping.

This year, there are fewer surviving brisk-and-mortar retailers and Amazon is again expected to play a very dominant presence in online retail sales.

Sales and operations planning and product planners managing B2C retail-focused holiday demand may tend to factor such robust forecasts into actual channel inventory, distribution, and customer fulfillment plans. Likewise, teams planning B2B or industrial focused demand may tend to cut back on end-of-year focused inventories because traditionally, such demand tends to decline during the holidays.

Supply Chain Matters however, would advise some prudent caution and here is why we take such a view.

Within the past two months, economies have been shaken by unprecedented amounts of catastrophic storms, flooding, wild fires, and major earthquakes. Hurricane Harvey brought tremendous flooding to the Texas and Louisiana Gulf Coast region, with areas of Houston suffering tremendous amounts of flood-related damage.  Housing will need to be repaired, large numbers of automobiles and trucks replaced, while consumers across the nation continue to experience higher gasoline and fuel prices because of impacts to energy industry supply chains.

Hurricane Irma impacted large portions of the state of Florida as well as portions of the U.S. Southeast. Major damage was incurred across the Florida Keys and in the western portions of the state. Hurricanes Irma and Maria caused major destruction to many Caribbean island nations and we are all now aware of the widespread infrastructure and housing destruction across Puerto Rico. Mexico encountered two major destructive earthquakes, one of which caused destruction and loss of life in Mexico City.  Severe outbreaks of wildfires continue to impact large portions of Northern California with many homes and vehicles incinerated.

The point of the above litany is that many consumers likely have added needs in the coming weeks and months, needs that will cause decisions on whether to cut-back on holiday giving because of higher priorities related to housing and recovery.

Our takeaway is that S&OP teams and supply chain planners across all industry sectors need to move beyond traditional holiday product forecasting techniques and instead sense what is likely to be extraordinary changes or shifts in traditional or holiday product demand patterns over the coming weeks or months.

For example, auto industry planners have been planning for higher levels of production shutdowns during the upcoming holiday period, mainly because existing finished goods inventory levels are rather high.  With potentially thousands of vehicles now needing to be replaced, the question is whether consumers turn to the used-car or new car market for these replacements. Do planners have the right mix of available model inventory, or will sales and marketing plan for some aggressive holiday promotions to capture replacement demand. A similar analogy may be pertinent for building, construction and home improvement related products that traditionally experience lower demand levels in November and December but may be experiencing extraordinarily different demand patterns from different sales regions.

The bottom-line is that industry supply chains are dealing with the aftermath of an extraordinary series of catastrophic events across the U.S., Mexico, and the Caribbean. More storm-related events may occur as winter approaches.

Rather than traditional heuristics-based planning and forecasting, there is instead an obvious need for continuous planning cycles that factor actual retail and channel product demand sensing in many product dimensions, holiday and non-holiday related.

Do not get trapped by traditional forecasting methods in extraordinary times.

Readers are encouraged to share what their organizations are already sensing that is beyond traditional forecasting models.

 

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.