Scenario Planning for Seasonality — The Ultimate Duet Between Demand and Supply

Summer finally feels like it’s arrived in the U.K. The sun is shining, Wimbledon is on the horizon and families up and down the country are sparking up their barbeques.

Whilst many British residents associate the summer sunshine with relaxation — and maybe even a well-earned summer holiday — there will be others in the country for which this is the make-or-break selling period for their company’s seasonal products (e.g., alcoholic summer spritzers, barbeques and Father’s Day gifts)

Here lies the crux of the seasonal product supply chain. Months of supply chain planning and production have been orchestrated, and now the only question to be answered is “Will the sales be in line with the forecast?”

Facing Into the Decoupling Between Demand and Supply

For products with highly seasonal demand, supply chain leaders must acknowledge, and proactively face into, having to finalize decisions on supply commitments in the context of incomplete demand intelligence. This challenge is not unique to seasonal products, however, it is amplified by the stockbuild requirements often required to service the huge peak in sales.

Key to maximizing the seasonal peak’s profitability is ensuring that commercial teams are engaged up front and in advance of the supply plan being “locked and loaded.” Insights around projected category size and market share, joint business plans with key customers and advertising and promotional plans all provide assumptions to underpin the size of the demand peak.

Identifying Risk and Opportunity to the Sales Forecast Through Scenario Planning

Companies can leverage commercial insights further by using scenario planning within their S&OP process. Scenario planning allows companies to take proactive, financial-based decisions to trade off the opportunities of seasonally driven sales, often at optimal margins, versus the risk of closing the season with unsold stock. At best this stock might sit on the balance sheet for a year and, at worst, depending on shelf life, may be at risk of write off.

To work at its best, scenarios should focus on variables that might cause a positive or negative variance around the demand plan during the sales peak. Such insights and intelligence lie in the heads of the commercial teams in the business. Therefore, it is critical that intelligence and insights come from the demand side of the business, rather than being estimated or assessed in isolation by those further upstream in supply chain.

Consider Not Only External Variables, But Also Internal Levers

Splitting the factors that might impact sales into external and internal drivers helps provide a structure (see Figure 1). It is also an important distinction to make. A company will have limited ability to influence the external factors: however, the internal levers are within its control. Data and intelligence from sales and marketing teams on understanding, upfront, what internal levers exist to mitigate external headwinds allows different scenarios to be modeled from both a volume and value perspective.

For example, commercial colleagues might be able to provide intelligence such as:

“An x% uplift in sales or a y% increase in market share could be stimulated by an extra z$ investment in marketing”

Upfront information like this is scenario-planning gold dust! These sorts of inputs allow business leaders to make informed, assumption-based and quantified decisions upfront about the financial consequences of selling through seasonal stock builds. Constructing various scenarios that assess the impact of a variety of “what if” scenarios based on both external variables and internal lever responses enables potential outcomes to be assessed before irreversible decisions are made.

Five recommended steps to bring the theory to life

• Start your engagement with stakeholders early — If your seasonal products have an annual cycle, you only have one chance a year to set out your stall.
• Identify who will sponsor your approach — Ultimately, this needs to be the person in your business that cares how both revenue and costs impact the bottom line and is also invested in the inventory impact on cashflow.
• Partner with finance — Switching on any internal lever to stimulate sales of prebuilt stock will almost certainly trigger a cost. Collaboration with finance should both facilitate predicting the financial outcomes of different scenarios and also provide an ally in pitching your proactive, scenario-planning approach.
• Document the lessons — As you practice the strategy, keep a record of what worked and where there were opportunities for improvement, both in terms of data and approach. This ensures that valuable knowledge is incorporated into planning for the next peak.
• Ensure active decisions are made in a timely manner — By its nature, this supply chain context is time sensitive. If a proactive decision is not made, a passive one will be made, by default, in its place.

Sarah Gilchrist
Director Analyst
Gartner Supply Chain
Sarah.Gilchrist@gartner.com

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