Forecasting in the Pandemic Economy
“When Nothing Is Sure Everything is Possible”
-Margaret Drabble, Novelist, Biographer, Critic
Uncertainty is the watchword for retailers trying to conduct business in the pandemic economy. For some, demand is spiking, but supply is uncertain. For others, both demand and supply are uncertain.
For retail, survival is accurately forecasting demand when the future is driven by uncertainty.
Using historical models to forecast in the current economy is irrelevant. It is impossible to predict what has never happened. Most retail segments from grocery and pharmaceuticals to fashion are feeling the impact. How do you forecast a Christmas season, when we risk another lockdown? How do you forecast a spike in demand for household staples like hand sanitizer and toilet paper? How do you plan for spikes in bottled water or canned goods? The level of uncertainty has left all retailers challenged to predict the future.
The good news is that retailers have forecasting solutions designed to address uncertainty and can leverage these systems to make better decisions. First, it is important to identify key demand shifts and patterns. For example, what kinds of products or categories are purchased when people may be forced to stay at home. As demand shifts to online ordering, can the supply chain change to support the shift?
Next, learn and adapt. The pandemic started in different regions and countries at different times. Be proactive and gather data from stores and regions where pattern shifts are initially observed, and plan for those patterns to take hold in other locations.
Understand the real vs the possible. Sales patterns, like level, seasonality, or trends, are replicable by forecasting solutions. Changes in forecast levels are typically captured by forecasting solutions to meet demand. It is important to understand that in some cases a level change does not reflect real demand, but rather a situation where the quantity sold is constrained by the quantity available at the store. In this case, a retailer is selling what is available and could be missing actual demand and losing sales.
Does this mean a forecast should always be above level? It is important to understand the balance between over forecasting and lost sales. Forecasting solutions can help improve and identify where it is possible to be better.
Collaborate with suppliers. Once you understand where demand opportunities exist, it is critical to work with suppliers to understand if the supply is available to meet demand. Fine-tuning a forecast to perfection may be irrelevant if it is impossible to operationalize the supply chain to meet forecasted demand.
Be prepared to “renormalize.” As the pandemic subsides, demand can return to regular patterns and the successful retailers will be prepared for this shift. Buy for short periods to avoid future overstocking. Irregular sales patterns will exist for a period of time as the pandemic eases. Forecasting solutions are a tool to provide future insight, allowing you to adapt to short term irregular sales patterns and identify the medium and long term expected behaviors to avoid rash decisions.
The forecast never stops being a key driver of business decisions. What has changed is the way it is used. It is no longer a pure mathematical output that drives the supply-chain process. Forecasting helps retailers have a powerful set of insights to drive accurate decision-making.
October 2020 by Nuno Santos, Senior Business Consultant - Retail Consult