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Working with the unpredictable – how Retailers cope to serve their customers

First things first: For our customers of SAP Forecasting and Replenishment and Unified Demand Forecast, some advise on how to handle demand forecasting challenges the current situation have been collected in a note that is continuously updated.

We hope this provides a little help and guidance in adapting to these challenging times.

 

Working with the unpredictable – how Retailers cope to serve their customers

According to Robert Moraca, the National Retail Federation’s (NRF) Vice President of Loss Prevention, “Every retailer has what’s known as an ‘All Hazard Plan.’ It’s comprehensive in detail and it breaks down not just the basics of business continuity, but specific actions tied to whether they’re facing a natural disaster or something different,” Moraca said. “If a pandemic were to occur here in the U.S. — and clearly there is no indication of that right now — retailers have detailed plans outlined that they can quickly deploy.” (1)

That was back in January. In April, the pandemic has spread globally and is affecting retailers hard. For those who had to close their shops, online shopping may be a small glimpse of hope but else there is not much they can do to influence their business, “all hazard plans” in place or not. The ones without any online business are left with the hope that this situation will fade off as quickly as it has appeared and trying to come up with creative ways of keeping up a minimal business.

For the so-called system relevant retailers, such as grocers, drugstores and pharmacies, the situation is quite different. They are dealing with a sudden shift of demand compared to ante-pandemic times, resulting in an exploding demand for certain product categories (sanitizer, health products, nonperishables etc.) to the detriment of others.

Even with an “all hazard plan” in place, there is only so much you can do and control within your own company. The current situation is comparable to the operative Christmas peak for retailers, but tightened by the lack of advance to plan, and then further tightened by the lack of supplies. So how are retailers dealing with the situation ? Notably we observe:

  • Group critical articles and stores to treat them with priority when it comes to ordering, transportation, shelf refill
  • Adapt order and delivery schedules to higher frequencies, and if not possible, then a focus on the current ultra-fast sellers. For example, the German “Sonntagsfahrverbot” for trucks was lifted – until now trucks were banned from the streets on Sundays -, which now allows retailers to increase their delivery cycles.
  • Provide more staff to the stores for constant refill & sanitizing (see also the unprecedented cooperation of Germany’s ALDI with McDonald’s).
  • Reduce store opening hours to leave time for refill, like Tesco or Asda in the UK currently do.
  • Flexible shifts for refill, for example including weekends for refill, as German drugstores dm introduced recently.
  • Increase of allocations as many critical products have become scarce. Allocations in that context imply more than the usual fair share, but rather allocating to stores with the highest demand and biggest risks to run out of stock.
  • Higher usage of flexible replacement/substitution product scenarios which also goes along with sourcing flexibility to cover the increased demand. Every consumer by now has noticed all those pasta brands that never were available before at their usual supermarket.
  • Boost of online business, home deliveries or pick up scenarios.
  • Increase of manual demand forecasting activities to adapt to pandemic spread, governmental measures taken and hence sales volumes impacted. A far cry from earlier automation degrees, demand forecasting for the critical categories has become much more manual, with planners adjusting forecasting or adapting the models for higher sales reactivity, increase safety stock levels, and changing cycles – but all of it closely monitored for changes in the current situation.

The next question will of course be – when will we return to the “old normal”? For now, it is unclear when the saturation phase will set in. If you have heard about the great toilet paper shortage in the US in 1973 which was triggered by a gag of Johnny Carson, you may recall that hoarding and hence actual self-inflicted shortages lasted for a couple of months. So even if tinned goods are piling up to their ceiling – psychology can make people still buy for quite a while.

So there is no other means than monitoring every day if the situation is about to change again; and then it will be interesting to see how consumer demand changes:

Everything is possible between a simple back to before to an exaggerated countermovement where people will eat out a lot rather than shop groceries, leading to longer lasting dips in demand. At some point there will surely be lower-than-usual sales of the previously hoarded non-perishables, until the personal stock piles are ramped down again.

So it looks like retailer’s are not done fiddling about their planning models for a longer period of time and adjusting to every phase of the process.

Stay well and healthy.

(1) https://nrf.com/blog/us-retailers-are-taking-steps-prepare-impact-coronavirus

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