With Thanksgiving now a recent memory, many consumers have turned their attention to the holiday shopping season. Businesses are gearing up for – what they hope to be – a chaotic shopping frenzy. Some retailers, including Target, Toys R Us and the online giant eBay, didn’t even allow Thanksgiving to come to an end before opening the holiday shopping season as Black Friday has apparently turned into Black Thursday Evening. The National Retail Federation predicted that 140 million people were determined to find the best holiday deals over Thanksgiving weekend. Many businesses place lots of hope in fourth quarter sales and the holiday rush, but sometimes these businesses are left with a huge discrepancy between what they hope for and what actually transpires.
Both consumers and businesses are faced with some tough questions during the holiday season. A consumer, when deciding whether or not to head out on Black Friday, may ask: What if my favorite retailer underestimated demand? Will there still be that lap top/TV/gaming system for me? Or, one of my favorite Christmas examples, how can I find a Turboman action figure?
I bet the producers of Turboman regret not having more stock to meet the crazy demand in the famous Chistmas movie, Jingle all the Way. Businesses have to ask themselves: what if the consumer’s don’t show up? Or equally as bad, what if they do show up and I run out of product?
So how can businesses best plan for the holiday shopping season? There is no easy answer to this question. However, simply planning based on “gut feeling” will likely prove to be disastrous for a company. There is typically so much riding on this time of year and a company’s demand planning strategy is so critical to the overall functionality of the supply chain. One small mistake in the demand planning process could have a multiplying negative effect across the supply chain. For example, overestimating demand in hopes of a fourth quarter Christmas miracle could lead to an over- production of goods, creating lots of tied-up capital in warehouses. Too modest of a demand plan could leave customers unhappy and create a situation similar to the one in Jingle all the Way.
Finding the right balance is a difficult task, especially in an ever more volatile, competitive market. Luckily for demand planners, the reliance on “gut feelings” and the hope for a Christmas miracle can be supported by technologically sound forecasting tools.
Using Operations Research technology to support demand planning
Demand planning software based on operations research takes historical data into consideration and calculates forecasts for future demand. Reliable forecasts based on powerful mathematic algorithms provide the much needed “hard facts,” during critical planning phases, such as the holiday rush. Through using intelligent forecasting tools, inventory managers are able to create an efficient demand planning process and achieve optimal planning accuracy. Seasonal trends, including Black Friday, are automatically taken into consideration when forecasting demand. Of course, planners are also able to work with the forecasts on a real-time basis, allowing personal experience and adjustments to flow into the demand planning process.
An intelligent IT system, therefore, should be on the Christmas wish list of demand planners across the globe. Using an intelligent software system in combination with the knowledge of customer needs, market trends, current events and planner experience constitute a solid basis for demand planning.
What tips do you have for planning seasonal demand?