Online shopping continues to show strong growth, with nationwide year-on-year eCommerce growth of 73% since the World Health organisation announced the pandemic on 12 March 2020. But the unpredictability of demand may make it more challenging to forecast sales volumes with any certainty for the final quarter of the year.
As Victoria entered stage 4 restrictions, the first week in August saw year-on-year eCommerce grow 157% in that state. This growth has been so significant that the six weeks to August 22nd recorded the highest number of online purchases in Victoria’s history.
However, Deloitte Access Economics analysis suggests retail is still likely to face economic headwinds in the second half of the year, with a potential ‘post-JobKeeper slog’ on the horizon.
Chris Coldrick, a Partner in Deloitte’s Melbourne-based Supply Chain and Procurement practice, says this year’s planning will depend much more on external variables, including government policy changes, and employment, wage and population growth, than in previous years.
“Macroeconomic factors are having a significant impact on demand – you can’t simply look at last week’s or last years’ sales to predict what will happen. And these factors are also changing consumer behaviour. It’s a step change for the retail sector,” he explains.
In 2013, Deloitte’s global supply chain practice had been investigating the supply chain risks caused by ‘black swan’ events – high impact, low probability events which seemed to be occurring more regularly and can have far-reaching consequences in a globally interconnected business environment.
“Supply chain resilience and supply chain agility are really two sides of the same coin,” explains Craig Albiston, Supply Chain and Asset Effectiveness Principal with Deloitte. “Resilience is the ability to respond to changes and disruptions on the supply side, agility is being able to quickly adapt to demand shifts.”
Australian retailers are being asked to do both these things simultaneously. So how can they prepare for what is traditionally the make-or-break last quarter of the year?
Plan for different scenarios
In ‘normal’ times, last year’s sales are usually a fairly good indicator for this year, according to Coldrick. But he suggests retailers consider switching from an ‘automated’ forecasting approach to scenario-based planning.
“Take a view on what you expect to happen, and then assess what could happen if you underestimate or overestimate demand. Assign probabilities to these events, so you can take a course of action with eyes wide open.”
On one hand, that could mean stock out implications if you underestimate demand. On the other, it could lead to excess inventory – and write off or discounting costs.
“Accept that one of these situations is potentially inevitable, and set up lead indicators so you can take early action when you know which position is more accurate,” he suggests.
He gives the example of the beverage industry, which will be closely monitoring where people are consuming alcohol over the holiday period. “Are they at home, or at restaurants and bars? This then determines how much is kegged or packaged for the hospitality trade, and how much for liquor stores and at-home consumption.”
Strategies could then be put in place at the warehouse or national distribution centre, for example, to help mitigate the risk of ‘worst case scenario’. “For example, the pharmaceutical industry uses a postponement strategy, where they manage the final packaging of medication at the last possible minute,” Albiston explains.
If demand is with the end consumer, production might go into branded or private label packaging. If it’s with the healthcare system, more might go into bulk plain packaging for hospitals.
“There are always strategies and options you can employ with your suppliers and partners to help deal with uncertainty, but you’ve got to look at the end-to-end supply chain,” he says.
Collaborate with your partners
End-to-end supply chains are becoming increasingly complex, global and interconnected, which is why Albiston says collaboration is a key pillar, along with visibility and flexibility, in building resilience.
“Your customers, logistics service providers and suppliers may also be struggling to forecast demand and manage supply, so it’s important to carry out scenario planning with your partners,” says Albiston.
They may also be able to offer solutions or options to help you deal with ‘pinch points’, or find under-utilised capacity which could be re-purposed to meet demand. “You need capacity and flexibility to deal with different scenarios, and part of that might be reconfiguring your supply chain with the help of your partners,” he says.
“If you wait to react to events, you could incur substantial costs,” warns Coldrick. “For example, if you’re running a distribution centre dealing with a demand spike, additional staffing may add penalty rates, or exceed automation capacity, or require overflow storage facilities if demand slumps unexpectedly. If all these things are unplanned, they can be more inefficient and expensive.”
Put safety first
This year’s Christmas forecasts may also need to consider the potential impact of coronavirus on sales channel demand and availability. Government restrictions have shaped retail demand and supply in extraordinary ways – from closing bricks and mortar stores during lockdown periods, to reducing the number of staff onsite in Melbourne warehouses and distribution centres under the most recent Stage 4 requirements.
These decisions may be difficult to forecast, but they have a significant impact according to Coldrick. “We’ve seen panic buying in some categories and slumps in others as soon as the government makes an announcement. It makes a material difference in some businesses.” He suggests monitoring qualitative data as well, to build a picture of general sentiment.
Ultimately, what retailers really need is visibility – real time information on demand and supply indicators. This can help you minimise the impact of any downside. And with some scenario planning, with the help of your supply chain partners potentially turn upside into even greater growth opportunities.