The U.S. Census Bureau released May retail sales numbers for various retail trade sectors, and it struck me that if you reside in the consumer electronics sector, you have a challenge to overcome.
This is my perspective to this problem. The government figures indicate an overall decline in retail sales of 9.7 percent in the period from March through May 2009. A look at the consumer electronics sector (electronic and appliance stores) for the first five months of 2009 show an overall 8.2 percent decline in sales. At first glance, if one correlates the declining trend in overall retail sales with the specific consumer electronics decline, the indication is clear, a declining market. Industry forecasters also point to the fact that one of the major electronics retailers, Circuit City, no longer exists, and government stimulus checks are no longer in the hands of consumers, and that may also be a factor in this declining trend.
Not so fast. Demand planning professionals in specific companies, for instance Apple, Palm or certain laptop manufacturers may have a more difficult challenge at hand. Certain products such as mobile smartphones or mini-laptops have an opposite trend, and in some cases, consumers can’t even buy the product if they wanted to. My recent post on the Palm Pre is a case in point. The takeaway here is that organizations cannot just rely on broad market sales indices, but rather need the ability to dig into specific end-item product demand to ascertain a true picture. While some products may well be in decline, others may be exploding, even within a declining market sector.
This is one of the prime benefits of today’s more sophisticated demand planning and management software applications. They provide your planning organization with the ability to succinctly trend demand for specific products, by sales channel, or by geographic region. As the analogy goes, you may have a few dogs, while also having some stars in your product offerings. The key is having the planning intelligence to determine which products need to be ramped down vs. which need to be ramped-up.
Sounds fairly basic coming from Supply Chain Matters, but far more difficult if you have not invested in more sophisticated capabilities in your demand planning processes.
We are seeing suppliers to retailers now utilizing POS data from store locations to evaluate consumer trends in the store. This has enabled the supplier to see changes in buying patterns of consumers faster than the retailer in many cases. This visibility and store level demand modeling capability allows the supplier to anticipate the forth coming purchasing change from the retailer with the appropriate product already produced and positioned for delivery. In the past the supplier would have been waiting for the regular replenishment order that would not come, while receiving a completely unanticipated order for the new product the consumer had switched to weeks before in the store.
The visibility to the store level POS is also enabling the supplier to recommend more frequently appropriate changes in plan-o-grams with a much more efficient selection of the item assortments tailored to each store and their consumer’s current purchasing behaviors.
Cal, thanks for sharing these observations.
The capabilities to monitor what end-item products consumers are actually buying, including what regions and/or channels is indeed a very important capability for manufacturers who deal with consumer-oriented products.
You also bring out an important observation, that of having advanced intelligence of changes in product demand, without having to wait for the latency of multiple partner business processes.
Bob Ferrari
At the other end of the spectrum from POS data are the decisions that are made by the senior management team based on valid, reliable, relevant projections of demand data.
The right Demand Review at that level can provide significant insight and context for the rest of the organization, something that SKU-level forecast models might not.
The key is to aggregate supply chain execution data to the level that is appropriate for that group and to focus the meeting on actions that will be taken to improve demand for products and services. Forecast accuracy is less important at this level than outlining the work needed to drive future demand.
It definitely requires supply chain managers to think more broadly about “demand planning” within their companies and to work to develop demand reviews that provide the most context and insight.
Jeff- great perspective around achieving executive level demand visibility and buy-in.
Bob Ferrari
One of the interesting things about POS data is that, by definition, there needs to be a sale in order for there to be data. For declining products, POS data provides full value in providing visibility to the first indications of the decline (i.e. demand is declining faster than anticipated, calculated store inventories are higher than anticipated). At the other end of the spectrum where as Bob points out ‘Certain products such as mobile smartphones or mini-laptops have an opposite trend, and in some cases, consumers can’t even buy the product if they wanted to.’, POS can only provide part of the story. That is, it can tell you that demand is quickly rising, but because sales lost to stockouts aren’t captured in any way, it doesn’t provide a full picture of what the demand really is.
I also really like Jeff’s comment ‘It definitely requires supply chain managers to think more broadly about “demand planning” within their companies and to work to develop demand reviews that provide the most context and insight.’ The best companies will use conventional forecasting and market analysis simply as a starting point. The real effort and thought will go into how to shape the market in order to maximize the benefits to the company.
Bob- thanks for sharing your perspectives.
You have uncovered an important learning regarding products that are in high demand. Indeed, POS data is unreliable in a stockout condition. In those situations, organizations may have to rely on lost sales information that may be captured in CRM systems, or direct conversations with various sales and marketing teams. This is indeed when demand planning becomes a competitive skill.
Bob Ferrari