Roll Call: What to Look for When You’re Coming Out of an Allocation Crisis

Do NOT Self-Destruct; We're Planning Our Way Out

So here we are now…  It’s officially a toilet paper crisis.  Unless you’ve been self-quarantining from the media over the past few weeks, you’re sure to have heard all about it. Stores sold out, hoarders stockpiling for resale, and strangers squaring off for the right to squeeze the Charmin.

Crises can take many forms; Sometimes they’re manmade, like a tariff or trade dispute.  Other times they’re market-driven due to “The Kardashian Effect” (also known as the Oprah Effect).  And sometimes, it’s just an out-of-control worldwide sh*tstorm pandemic.

Either way, you have a job to do-  Managing an essential part of a supply chain. So what are some of the things you should look for in order to get things right and make sure everything returns to some sense of normalcy sooner rather than later?

Handle the Panic Buying

When supply is tight, customers tend to order more.  Why?  Because if they only satisfy half of this week’s orders, then next week they will order twice as much to get what they need.  When all your customers do this, the demand spike grows exponentially.  Unfortunately, human nature still infiltrates even the most automated of supply chains.

Despite the panic and energy coming at you from multiple fronts, it’s important to put some common sense behind your service strategy.  For example, make sure you understand the order patterns and evaluate current orders against past order history.

Sometimes it will be legit, sometimes it won’t.  Even though the pressure to deliver is on, make sure you are taking the time to provide thoughtful, strategic responses to your entire customer base.  Because once that unit of inventory is gone, it’s gone for good.

Demand Outlier Corrections

This is where analytical tools like SAP’s IBP demand planning application provide a tremendous amount of efficiency.  Statistical analysis of past order history can identify and eliminate outliers automatically, helping to reduce the workload and produce a more accurate sales history for future forecast

Seasonality is one thing, but when one-off occurrences happen due to social media or global events (does social media count as a global event now?), it needs to be excluded from the historical data as an input to the forecast or it will influence your demand signal for many cycles to come.

Separating out the “real” from the “panic” demand is a bit of an art, but you can still use historical averages and trend lines to make the best calculation possible. Your future self will thank you.

ibp dashboard
Demand Signal Before and After Outlier Correction

Return to Normalcy

Recovery is the big thing that everyone wants to know.  When will it get back to normal?  This is where investments in systems and technology show their true value.  In SAP’s IBP platform you can run multiple scenarios in minutes, comparing impacts to all areas both upstream and down,  evaluate financial and operational impact of each decision and move forward with a plan in record time.

This also shows the need for redundancies in the supply chain.  All of this only works if you have built in “Plan B” options.  Single sourcing, single vendors might help drive a better deal in the short term, but when agility is needed you end up severely constraining your supply chain.

Having options available  (with the technology required to project recovery timelines with accuracy and precision) will lower everyone’s blood pressure, from your customers to executives and vendors.  Even if it’s a bad answer, having the data to back it up will give your extended supply chain customers the ability to make future plans.

Of course it’s easy to see the need for tools, processes and redundancies in your supply chain when you’re in the thick of it.  It’s much harder to prepare for such a scenario when day-to-day operations are running smoothly.  Unfortunately these types of disruptions from weather, global trade, governments or social media are becoming more and more commonplace.  And there’s never a better time to start preparing for the next crisis than right now.

Watch: Managing Chaos with SAP's IBP: Coronavirus Edition (SCM Connections Live Webinar Replay)

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