Demand forecasting during COVID-19 brings a whole set of challenges and opportunities.
COVID-19 is a black swan event and most of the critical demand forecasts that underpin your business could be wrong for the next 3-12 months, if not more. History is no longer a predictor of future demand. You will need to adjust your short- term forecasts during the crisis and medium-term forecasts when the recovery begins
Different industries and regions have been affected in different ways and the recovery will be uneven too. Consumers are changing their behaviours – what they are buying, how often they are buying, how much they are buying at one time and the purchasing channel. Grocery, health, cleaning products, home renovations, domestic travel spending has gone up along with a focus on sourcing local. But spending on vehicles, clothing/footwear and eating out is down.
As people go back to work and a new ‘normal’ is established, it is unlikely that customer behaviour will return to its former patterns. Unpredictable demand is here to stay as social distancing policies are modified with potential easing and re-introducing higher alert levels.
With uncertainty ahead, demand forecasting will remain very difficult and inventory management teams will need the best tools and forecasting methods for the job.
Reacting to demand trends caused by COVID-19
Many companies will need to increase their investment in analytics and insights to monitor demand trends and ensure stock levels match customer requirements.
Demand will shift fast and inventory managers will need to move on from manual forecasting or get left behind. With up-to-date forecasts, inventory management teams can react quickly, maximising sales opportunities, but also preventing build-up of excessive stock.
Combining demand forecasting technology with human insights
Human insights are a useful addition to quantitative inventory forecasts when demand is unstable and not following historic trends. Use feedback from your sales teams, market intelligence, insights from your customers and trends in COVID case numbers.
Minimising inaccurate demand due to COVID-19
Producing forecasts with 100% accuracy is going to be impossible with the current level of uncertainty. But there are a few things to do to put a safety margin in place to help prevent stockouts or increases in surplus inventory
- Ongoing demand tracking
Track your actual demand on a daily basis and spot anything deviating significantly from its projection and then adjust reordering if needed. - Risk of running out of stock
By regularly comparing forecasts to current stock levels and supplier lead times, you will be alert to potential stockouts and confirm if an order should be placed. It’s also critical to identify items that are the most critical to your supply chain e.g. those that you rely on to keep production flowing or that your customers can’t do without and consider increased safety stock levels. Particularly where there may be delays in supply. The companies that have built-in levels of redundancy and aren’t just-in-time-optimized when it comes to inventory are better positioned to meet customer demand
- Focus on inventory accuracy
During the COVID-19 pandemic, it has become event more important to focus on the accuracy and reliability of inventory levels. It is important to know exactly what you have and where you have it if your inventory is distributed over several locations so need to be people updating the inventory every time something goes in or out so that you are confident in the accuracy of stock levels.
The COVID-19 pandemic will be affecting consumer behaviour and demand forecasting will be challenging for a while. Without a good inventory management process and access to accurate numbers you will likely struggle to keep up with demand in some categories or have an oversupply of products that customers are now less interested in.
Keen to find out more about how you can use analytics to improve your demand forecasting?