Supply-Chain, “Bull-Whip” Management
Product, Supply-Demand Chaos is Upon Us
Never has a global, just-in-time, balanced economy been shut down by a pandemic. Then, rebooted with:
- Massive “quantitative easing” by all central banks
- Political, New-Deal-2 stimulus cash to voters and lobbying industries.
- With on-going, escalating trade-wars and supply-chain reshoring.
Longer-term, expect unintended consequences. Short-term, enjoy the sugar-high before supply of goods eventually exceeds a saturated, with-hoarding-excess demand. Boom now, bust later. The peaks and troughs will vary across channels and for precise timing – unknowable. But, the “Bull Whip” process and patterns will happen.
Optional homework: wiki “Bull-Whip Effect”. Grok it. Then, ask: how can your company maximize the boom gains? Minimize the bust hits? And, win big in the long-run?
Be Humble. Forecast Probabilistically Better Than Gut-feel Competitors
All distributors look smart during inflationary shortages. But, if the average CEO is happy 1X, then there are 5% of all distributors that are doing 4X better. How? They have better: early warning data; statistical forecast buys; replacement pricing; and allocations to best, long-term customers. When their forecasts do miss by less than average pikers, their teams create fixes with more agility. Win big now and later!
How To Be Top 5%?
Whatever your current information is for supply and demand factors, how can you get earlier warning datapoints?
- Get an insider’s view at your top-5, best-long-term suppliers to then monitor what their input availability and lead times are.
- Do the same with 5 best customers in each target niche. How are they scrambling? What new sources of goods are they finding? And, when they start to have some extra inventory: the bust is near.
- Proactively raise replacement costs for inventory. Only consider meeting prices for best, most, net-profitable customers. Offer no concessions to customers that are historically unprofitable or a competitors’ pets. Reps will beg for allotments and prices for non-core customers. But, be firm: feed your core and gazelle customers and starve the losers.
- Rep commissions may well boom and then bust. How will you manage windfall comp on the upside and then rep demands for bust, income-protection?
Bottom Line
Don’t smile into sugar-high gains that may be hitting your channel. Get vigilant. Upgrade your forecasting and Bull-Whip decision-making. Educate everyone about Bull-Whip realities. With 20%+ better decisions than gut-fell competitors, you will win for all of your stakeholders in the short and the long.