Demand Planning Pillars for Retail CPG Companies: Seasonality, Trends, and Causals
By: Rola Losco
Demand planning is an essential process for retail consumer packaged goods (CPG) companies. With a high level of planning, these businesses can optimize their levels of inventory, production and distribution to efficiently meet their customers' needs. Failures of planning, by contrast, could lead to expensive excess inventory or shortfalls during key seasons.
Rather than examining one set of numbers to achieve perfect demand planning, as a CPG-industry decision-maker, you should look into several different pillars. These prominently include:
Seasonal fluctuations.
High-level consumer trends.
Short-term causal factors.
The perfect combination of these concepts leads to multifaceted and accurate demand planning forecasts. Therefore, each of the three is worth exploring in detail, giving your CPG company all the tools it needs in your quest for greater efficiency.
Seasonality
In simple terms, seasonality means the recurring patterns of customer behavior during a given period or season, year after year. This data is one of the foundational elements of month-to-month and season-to-season demand tracking.
Having a solid grasp on seasonal trends allows CPG retailers to perfectly tune their spending and resource levels, year after year. While analysis focused solely on seasonality can deliver an incomplete picture, the data forms a solid foundation for overall demand planning.
There are a few specific aspects of seasonality that are central to demand planning. These include:
Historical data analysis: What are the company's peak seasons? When do lulls occur? How have the seasons affected retail activity in years past? These numbers provide the basis for seasonal planning.
Promotional activity: Not every event that happens seasonally is caused by outside factors. Sometimes, a company's sales, promotions and participation in festivals or other events can have an impact on sales, and this is worth analyzing.
Collaborative planning: When planners look at seasonal activity from a top-down level, they may miss out on some of the detailed or nuanced factors that go into setting seasonal trends. It's worth polling stakeholders in various departments and throughout the supply chain to create more in-depth seasonal forecasts.
Armed with better seasonal analysis, demand planners can begin preparing for the ups and downs of the business calendar.
2. Trends
In addition to the recurring cycles that happen within each year — seasonality — comprehensive demand planning also involves longer arcs that affect general customer demand. These trends can extend over years and take a long time to reveal themselves, but the best-performing CPG organizations don't let this extended span stop them from measuring such market factors.
Ideally, having strong insights into trends will allow demand planners to not just react to what they're observing, but also plan for the future. Interpolating movements in customer interests and commercial activity lets businesses think one step ahead and gain a competitive advantage.
Some of the elements that go into trend analysis include:
Market research and customer insights: Demand planners can analyze what customers are investing in and talking about to determine the current and near-future state of the market. They can accomplish this process through surveys, sales data analysis, social media monitoring and more.
New product introduction studies: The launch of a new item may directly affect customer spending, but since there is no historical data, demand planners must find ways to predict the resulting impact. Studies of comparable past launches can help them craft a trend line.
External factor analysis: Some of the long-term factors affecting customers' activity don't come from those customers' immediate interests or choices. These are macro conditions such as the general direction of the economy, the introduction of a new technology or the introduction of a new law or regulation.
These major trends affecting customer interests and behaviors set the overall landscape in which seasonal fluctuations occur.
3. Causal Factors
Rather than recurring seasonal cycles or long-term market conditions, causal factors are the events and variables that affect customers directly. A causal factor might be an action by a CPG retailer itself, such as a price change. It might also be a move by a competitor or even something with no intent behind it, like a change in the weather.
A demand plan that incorporates causal factors can be more accurate than one simply based on seasonal fluctuations and long-term trends. Planners who consider these events in their projections will gain a more nuanced view of their customers.
Some of the important causal factors to monitor include:
Pricing and promotions: A price change — an increase, a discount, or a limited-time offer — could affect the way people spend. Planners can factor in their own companies' pricing, along with competitors' strategies, sale schedules and more.
Economic indicators: Inflation, consumer spending trends, the gross domestic product and more can act as solid indicators of individual purchasing power, and they're worth studying.
External events: Events such as destructive weather patterns, political instability or pandemic-related shutdowns have an immediate effect on the way customers spend. A demand planning model would be incomplete without a way to account for these changes.
The full picture generated by seasonal, trend and causal factor data can deliver nuanced demand forecasts — ones that help CPG retail businesses stay in line with what their customers actually want and need from them.
Finding Your Way to Optimized Demand Planning
Demand planning for CPG companies isn't a one-size-fits-all process. While the same foundational concepts are relevant to every company, applying the three major pillars to your organization and your customer base will yield different results and projections than any other business would receive.
A company's exact approach to demand planning can evolve based on its size, maturity and business requirements. For smaller companies, working from one year's worth of historic data may suffice. Larger, more complex companies with multiple units may demand more highly evolved models, potentially incorporating artificial intelligence and machine learning.
A truly suitable demand planning approach is defined by its results: The plan will allow your business to meet its customers' demands, providing a high-quality customer experience while remaining within its budget.
Today, planning software is a critical component in forecasts that evolve over time and incorporate a vast range of factors from across the three pillars. To build out a tech-focused planning approach that fits your specific needs, you need both the right software and a successful, bespoke implementation. Speak to Allitix about custom Anaplan integration and start planning.