We wanted to highlight an excellent article in the U.S.-based Procurement magazine Spend Matters. The article brings a Supply Chain / Procurement angle to a discussion of companies launching seasonal products – and whether these new seasonal products represent unnecessary risks for companies unprepared to measure product demand.
Everyone by now is accustomed to Starbucks’ highly-successful pumpkin spice line, (and, in our opinion, complaints about the prevalence of pumpkin spice are getting almost as tiresome as the ubiquity of pumpkin spice in the first place.) The article outlines how many companies are launching seasonal products for Fall and Winter – backed by big marketing dollars – with a hope of tapping into new revenue. It cites a report from retail forecaster Terra Technology stating that 82% of new items introduced into the market in the past five years haven’t stood up to the test of the retail battlefield.
It’s a big cost outlay to develop a new product, and it’s even riskier if you hope to capitalize on holiday seasonality: packaging, artwork, the product itself, as well as sourcing raw materials. And the Spend Matters article identifies two related complexities when introducing new products that many companies overlook: the possibility of Supply Chain and Sourcing troubles, and the need for strong Demand Planning to forecast the new product’s demand. Issues with Demand Planning in particular can leave new product innovators flatfooted when the holiday season rolls around – saddled with excess unsold inventory, which can be a disaster for shelf-life-limited seasonal products.
Especially when it comes to the holiday season, strong Demand Planning is one of the most crucial functions for companies expecting a seasonal boost in sales or introducing new products.
As we covered in our Lowdown on Demand Planning, skilled Demand Planners need to use as many tools in their toolbox as they can to accurately predict demand for their company’s products – from last year’s data, to competition changing the price for similar products, to point of sale data, to promotional activities. But with new products, it’s harder to rely on many of these factors because there’s less established data. In addition, economic conditions can rapidly change, and so can trends (who could have predicted Tickle-me-Elmo in 1996, the original Nintendo Wii in 2006, or other runaway holiday success stories?). Suffice it to say, Demand can be volatile. All these factors combine to make things especially difficult to predict demand for new products, and even more so for new seasonal products.
But that doesn’t mean it’s impossible! Spend Matters outlined some solutions to the difficulty of Demand Planning for new products:
- Risk Management Software solutions that utilize big data to offer early warnings.
- Organizations with nimble, flexible, and responsive production and logistics are best able to respond to volatility in demand.
Check the article out for more details.
Even the best organizations sometimes misjudge the demand for new products (the Spend Matters article cites Apple, renowned for having the best Supply Chain in the world, as an example). But if an organization can nail both the Supply Chain and Demand Planning for a new product, they’re set up to succeed if the product catches the consumer imagination – and minimize risk if the product fails to take hold.
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