August 24, 2021
If you are like me, during the pandemic you only bought necessities like food, home office equipment, and sweatpants.
And you only bought them online.
The reality is that most people did only buy necessities, and the demand for luxury items plummeted. With record “non-spending,” and cancelled vacations in 2020, it has been estimated that Americans have stashed away more than $1.5 trillion in excess savings.
So now, as a result of the vaccine rollouts, the $1.9 trillion stimulus package, restrictions starting to be lifted, shops opening, and the possibility of children returning to school and employees going to work, you can almost smell the money burning a hole in people’s pockets.
This urge to spend is known as “revenge spending.” It usually follows an unprecedented event as people seek to reclaim control and a sense of normalcy. And lord knows, I think we all want to get back to something close to normality.
What are people going to buy and when?
This is the $1.5 trillion question.
If I ever go back to the office or to conferences, I know I will need to expand my wardrobe (figuratively and literally), so clothing, and shoes are on the list. When children return to school there will be a rush for backpacks, stationery, laptops, and tablets, and we are already seeing signs of the school supply chain getting stretched. And then there are the luxury items like cars that were put on the back burner when everybody was homebound.
Will your business have the resiliency to take advantage?
When it comes to “revenge spending,” the sales forecast can be thrown out of the window. In fact, a forecast based on last year’s spending would result in shortages of the very items people are looking for (as they were not buying them for the past 18 months). And carrying excess inventory of everything, just in case the demand appears, is cost prohibitive.
So, what are some areas of focus that we should be thinking of to ensure we have the solutions in place to address these challenges?
Improve visibility into actual demand
We need to look to leading indicators like sentiment analysis of what our target markets are thinking and talking about. What is “hot” on social media? We also need early signals about actual sales, and how and where they are happening. It seems like the usage of e-commerce leaped forward 10 years in the first 10 months of the pandemic. So, will buyers continue to shop online? Will we see a return to in-store buying? A hybrid model is the most likely.
The challenges of responding to fluctuating demand has been highlighted by the recent shortages in the automotive industry due to the highly publicized chip shortages. During the pandemic, the demand for new cars literally “crashed.”
Now, as the demand has come back, due to the increased demand for other smart products such as consumer electronics, the auto manufacturers simply can’t get the semiconductors they need to meet the demand. This has resulted in a supply/demand imbalance for new vehicles.
Put risk mitigation strategies in place
The pandemic also exposed the weaknesses and risks in many global supply chains. Many industries (usually to reduce costs) have become reliant on suppliers and contract manufacturers from halfway around the world. So, when factories shut down and boarders closed, many companies had no “Plan B” for certain products or components.
If your source for a hot product or a critical part for that hot product suddenly shut down, you need to have contingency plans in place. By making risk management a natural part of the sourcing and procurement process and identifying alternative sources of supply by balancing off-shore, near-shoring, and on-shore suppliers and contract manufacturers, you can significantly reduce the risk of disruption.
Companies are also incorporating inventory optimization strategies across the business network to establishing inventory safeguards at strategic decoupling points, and buffer against disruptive events.
Enable the agility to respond to change with synchronized planning and execution
As well as having the visibility into swings in supply and demand, it is equally important to have the ability to react to the opportunities and risks they may bring. We saw during the pandemic that the clock speed of planning processes has sped up. Where once we may have had a monthly planning cycle, we moved to weekly or – in extreme cases – daily planning.
This requires business planning systems that can rapidly, simulate scenarios and re-plan based on changing market dynamics, and the flexibility to execute these changes across manufacturing and logistics processes.
Improve connectivity, collaboration, and visibility with partners
At the end of the day, no business operates alone and relies on a business network of contract manufacturers, suppliers, 3PL’s and other trading partners to meet changing customer demands and needs. By connecting with these trading partners, and communicating in real time, you can leverage the power of the network to respond to changes in supply and demand.
As customers start to flex their spending muscle, businesses must be in a position to take advantage of the opportunity and ensure their products are available to meet the demand. This will require the resiliency and ability to predict surges in demand and the agility to leverage their supply chain to deliver the goods.
To learn more about how supply chain leaders minimize risk and maximize opportunities with resilient, sustainable and customer centric supply chains, download a recent Oxford Economics study.
Richard Howells – I’ve been working in the supply chain management and manufacturing space for over 25 years, and I’m responsible for driving the market direction and positioning of SAP’s Supply Chain Management and IoT solutions. Prior to joining SAP in 2004, I spent 15 years with Marcam Solutions where I was VP of Marketing for the companies Process ERP solutions. I have also implemented ERP and SCM systems at companies such as Nestle, Gillette, Colgate Palmolive, Rohm & Haas, Wyeth, Royal Worcester Spode and Dairy Crest. I hold a Bachelor of Science degree in Computer Science from the University of Mid Glamorgan in the UK. Follow me @howellsrichard