I always am guaranteed a good chuckle when I venture into a retail store a day or two after Christmas. I laugh because in every direction you will see some red heart shaped product kicking off the Valentine’s Day shopping season. So, I mean, really? Santa Clause hasn’t even hung up his coat yet and Cupid is aiming his arrows at us! For most seasonal items and holiday promotions, it is all about marketing. Today earlier is better. The early bird gets the worm as they say.
In the Northern Hemisphere, most retail stores are now advertising and selling summer apparel and summer related products. I had to look long and hard last week for a replacement for my snow shovel. Because here in Michigan, in the Northern United States, we had one more winter storm. At one store, the location where the snow shovels have been displayed for the last 5 months now had a collection of Easter bunnies.
Seasonality is a complex issue…
… both from a consumer products and food products perspective. There are multi layers to this issue. There are different types of seasonality in which could be based on; climate (winter / summer) events or holiday events (Christmas, Easter, etc.). Then we need to look at the economics of seasonality. There is a commercial and manufacturing component which has issues that common to both as well as individual characteristics as well. On the commercial side, they need to have the products ready to go. Because they do not want to miss sales when seasonal buying begins. They also have to manage cross seasonal events which can overlap. Manufacturers need to balance the due dates their customers need the products on the shelves with the availability of the ingredients and materials needed to produce the items.
What happens if a product that is typically sold in the summer and has to be made in winter to reach the consumer in time has ingredients or materials only available in the summer? These are all issues that manufacturers need to synchronize with their customers’ needs.
There are three critical areas that need to be addressed with one important process / philosophy to effectively manage seasonal manufacturing. The three areas are:
- Value Chain Management
- Inventory Management
- Capacity Management
The process: Sales and Operations Planning (S&OP)
Does it surprise you? It shouldn’t be. If you stop and think about it; managing seasonal products for the most part should be pretty similar to how you manage your other products in the business; especially in today’s ever changing consumer demand driven world. The pandemic has changed consumer dynamics as well as retail and manufacturing dynamics. Historical forecasting is now, well, historical. It is a waste of time to even consider historical forecasting for seasonal, promotional or static day to day products.
The pandemic, on-line buying, social issues, and technology has made forecasting demand tougher than it has ever been. And this for most industries and vertical segments. To successfully plan regular, promotional and seasonal aspects of any manufacturing operation starts with managing the entire business ecosystem. This means you have to coordinate not just internal functions and processes. But also the external processes of your customers and your suppliers. You need to synchronize the entire business ecosystem.
And you can do that by breaking down the internal and external silos of information and communication. Sales and operations planning (S&OP) is an integrated business management process that achieves focused, aligned and synchronized business plans throughout all areas of the organization and their supplier and customer networks. This is done through collaboration and ensuring that the digital supply chain (information) is synchronized with the physical supply chain (materials) by managing the value chain, inventory and capacity.
Value Chain Management
To successfully navigate seasonality in products, we need to be able to manage & synchronize the entire value chain. Value chain management is the process of monitoring and managing all the components that comprise manufacturing, procurement, production, and distribution. Traditionally, S&OP was considered to be a process that was solely done within the manufacturing organization but to navigate through the disruptions and complex issues of manufacturing and supply chain today, the entire ecosystem or value chain needs to be included. Distribution of products today is complex.
To minimize delays and transportation issues and in the area of food to minimize food spoilage, item location is critical to having that right product at the right place at the right time. There is no area with this is more true than for seasonal products. The snow shovel needs to at the right place at the right time and they just might have to share some of that space with the Easter Bunny.
When manufacturers talk inventory management, the conversation quickly turns to finished products. In a seasonal environment, yes, finished products are critical. However, many consumer products and almost all food products are comprised of ingredients and materials that themselves are seasonal products. This is what complicates the entire process of a seasonal production or promotion run. How do you manage to efficiently produce and deliver products for a summer season if the ingredients are not available until the summer? Do you store them for an entire year? What about spoilage? These are all major concerns that will determine success or failure of a seasonal campaign. Synchronizing where and when finished goods need to be deployed through the procurement process is the most difficult process a producer has to manage with static demand. Seasonality just multiplies the problem.
The third area we need to manage is capacity. Manufacturing capacity is a finite commodity. Adding seasonal and promotional demand sounds easy but what if 95% of your capacity is already dedicated to static demand products? A balancing act needs to occur and that cannot wait until the seasonal production starts. What about sensitive product issues such as powdered hot cocoa with marshmallows that cannot be packaged in the late summer due to humidity factors? These are all concerns that have to be addressed not only far in advance but in respect to other seasonal and promotional products. We then need to make critical decisions; overtime, seasonal labor, adding contract manufacturers. The only way to manage capacity effectively and efficiently is to coordinate it through an Ecosystem wide S&OP process.
Today, manufacturing companies are operating in a new world with more disruptions and unpredictability than ever before. Producing consumer and food products is a difficult and complicated business under normal circumstances. Add in unpredictable seasonal demand and managing the supply chain and business with historically low margins has gone from bad to worse. The companies that can survive and remain profitable and thus stay in business are those who can manage operations and finance across their entire business ecosystem through collaboration and connected objectives. These include the objectives of your trading partners as well. It is within times of disruption and flux that Sales & Operations Planning (S&OP) becomes more vital than ever.
S&OP provides a unique capability to reconcile cross-functional plans, problems, risks, and objectives in a way that provides visibility, stability and alignment with corporate goals and throughout the extended value chain. Through an integrated S&OP process that includes customers and suppliers, we can reduce seasonal headaches and Santa, Cupid and the Easter Bunny can continue to do their jobs with smiles on their faces!!