Today, and for the foreseeable future, a major theme for the majority of firms competing in their respective industry settings is that growth and profitability stems from differentiated products and services. A recent PowerPoint slide title summed up this reality as: From Mass Markets to Millions of Niches.
These business and product strategies can be quite effective, but as more and more supply chain teams are discovering, there are implications and new challenges in added demand volatility and in different fulfillment methods for planning the demand-driven supply chain. Sales and Operations Planning (S&OP) and supply chain teams can be literally overwhelmed with added data but increasingly ineffective in the sensing and planning of product demand.
This is often referred to as the challenge in planning the long-tail of demand.
In its definition of long tail demand Wikipedia notes:
“The term long tail has gained popularity in recent times as describing the retailing strategy of selling a large number of unique items with relatively small quantities sold of each—usually in addition to selling fewer popular items in large quantities…
The distribution and inventory costs of businesses successfully applying this strategy allow them to realize significant profit out of selling small volumes of hard-to-find items to many customers instead of only selling large volumes of a reduced number of popular items. The total sales of this large number of “non-hit items” is called “the long tail.”
Traditional methodologies of supply chain forecasting and planning methods are often focused on either Pareto or A/B/C classification methods, namely detailed planning associated with the smaller percentage of items that accounted for the significant majority of revenues. Other products would have generalized product family level planning associated with inventory needs. With the advent of online and Omni-channel commerce fulfillment strategies, orders are now fulfilled from a multiple of different channels. Products are often customized from foundational platforms and demand signals become more variable in intervals.
The implications for supply chain planning are significant, and for some, imply an augmented investment in technology. Attempting to plan long-tail demand via multitudes of Excel spreadsheets is complex, often unwieldy requiring even more extended planning cycle times. More products must be planned at the item or SKU level in order to efficiently control overall inventory needs. In many cases, where item fill rate performance levels must meet high nineties performance, multi-echelon inventory planning technology can supplement both sales and operations planning (S&OP) and supply chain planning processes in order to efficiently plan overall investment needs among multiple fulfillment channels.
The planning and managing of long-tail demand fulfillment is the strength of supply chain planning technology that caters to distribution-centric supply chain needs. Of further consideration is a single underlying data model that can support more granular information streams.
From our lens, a supply chain planning provider that best understands and articulates the challenges and needed capabilities for managing long-tail demand is ToolsGroup. This supply chain planning vendor provides some one-minute videos articulating the long-tail challenge (accessed here and here).
ToolsGroup recently sponsored a Consumer Goods Technology hosted webinar on this topic featuring customer Dart Container which is available for on-demand viewing. Additionally, The Innovators Solution, which is a specific ToolsGroup blog, is running a series of blog commentaries related to the takeaways from this webinar. The Part One commentary can be viewed by clicking here.
The challenges for planning and the consequences of long-tail demand will indeed is on the minds of many supply chain teams.
Does that include your team?
Disclosure: ToolsGroup is a current client of the Ferrari Consulting and Research Group LLC.