How can businesses predict unconstrained demand in these uncertain times?
07 Jul 2022
Consumers have come to expect prompt delivery of goods, and organisations that keep extending lead times risk losing out – but it’s a hard balance to strike, which is why strategies should include foresight.
When Andrew Bailey, the Governor of the Bank of England, warned in May of a “very real income shock” due to energy prices and “apocalyptic” food prices, it caused waves of worry for businesses worldwide, understandably.
The geopolitical issues in Ukraine have further damaged already struggling global supply chains following two years of a pandemic and one of the largest container ships in the world, the 400-metre Ever Given, blocking the Suez Canal for six days. And consumers are being made to wait – for months, and in some cases years – for items in specific industries to be delivered. So the question is: how should businesses deal with demand in these uncertain times?
For example, some friends are having their whole house refurbished and, after engaging with a kitchen appliances company at the start of the year, have now been told that they will have to wait for the new ovens and so on until next year, due to supply chain problems. The new kitchen will be complete – minus the appliances ordered months ago – very soon. Of course, my friends want to use the kitchen and have been advised to fill the gaps with temporary devices. But will those stop-gap fixes become permanent?
My point is: when people talk about inflation, I wonder how much of that inflationary pressure will dampen the demand to the level that certain companies can achieve growth? In the case of this kitchen appliance company, I’m sure the delays and extended lead times are down to supply chain, or perhaps microchip issues. It’s been well documented that equipment shortages are hitting the automotive industry hard, but maybe it should be for companies to look harder at medium-term planning and the use of Integrated Business Planning at the leadership level.
Many variables influencing delays
I recently ordered a new car, and the manufacturers can’t provide a delivery date. The best they can do is estimate that it will – hopefully – arrive in 12 to 18 months. But I sense that this could be extended because so many variables influence that delay. And that lack of ownership and control should be a worry for businesses, not least because they don’t want to overpromise and underdeliver.
Consumers today expect to receive the things they purchase immediately, or near enough. Blame Amazon if you want, but that’s the reality. That desire for immediacy makes it hard for industries that cannot quickly fulfil orders. It makes it hard because they risk keeping customers waiting so long that they don’t want the goods anymore, sullying the brand in the process. And it makes it hard to forecast sales and firm up marketing plans and sales projections.
Additionally, by the time the kitchen appliance company can deliver the products to my friends, the unit cost is likely to have jumped, thanks to inflation and the more expensive materials. With the order having already been made, the company, presumably, will have to absorb that extra cost. They can’t pass that added expense to the consumer, can they?
I acknowledge that for many people buying expensive goods is not front of mind at the minute, but this needs to be factored into any sales projections. In all of the media we consume, we are being told that the warning lights are flashing about a recession, but not yet all simultaneously.
A tricky balance to strike
I’m in a fortunate position where I have been able to order a Tesla Model Y Long Range, which is on course to be delivered between August and October this year. The whole online experience was incredibly easy and being clearer with the dates indicates that the company has much more control over its supply chain. Obviously, Tesla vehicles use different technology than most other cars, but it says something about swimming against the tide and being innovative, or maybe it goes back to the days of Henry Ford with no or few options.
Unless companies have the foresight to start thinking about the likely unconstrained demand they should be trying to satisfy in, say, one or two years’ time, in light of inflation and the other constraints, leadership teams must urgently rethink their strategies. What they can’t afford to let happen is be caught out by a lack of supply because as and when people do want to spend money, that availability of product is critical to the business’s success. The quality of demand planning in businesses is generally lacking and tends to be pushed to supply chain vs the teams that can truly influence the outcome.
It’s a tricky balance to strike, and it will be fascinating to see what businesses do in the coming weeks and months in response to the current situation. They need to generate demand, but perhaps not too much right now. After all, is it more problematic to keep customers waiting, or not have the product for sale at all?