Nick Calver, Marketing Director
If we only understood demand completely then perfect supply would be easy. Right?
The problem is that demand is a complex beast and its many drivers are intertwined and obscured; a truly accurate picture would be beautiful but it just isn’t possible, is it?
Lots of factors muddy the water, like:
- Inadequate supply over several days in select locations can diminish sales in an entire region.
- Production issues leading to reduced availability of a key brand can affect national sales for weeks.
- When promotional outcomes fall short of expectations, they are often attributed to competitive activities. But is it possible that insufficient supply in the second week played a more significant role?
- Your promotions may inadvertently cannibalise sales from your other products, leading to unnecessary inventory wastage.
22% of CPG industry respondents cited less accurate forecasts as a significant hurdle to service improvement.
Boston Consulting Group
Repeating the same mistakes (is madness)
Albert Einstein famously stated, ‘Insanity is doing the same thing over and over again and expecting different results.’ Yet many CPGs end up in a cycle of poor performance because of a failure to understand past demand. It’s a hidden problem because they often:
- Overlook supply chain dynamics: Failing to account for supply issues when analysing past promotional performance risks underestimating demand and guarantees stockouts in future activity.
- Employ inadequate forecasting models: Adding to the challenge, many CPG companies rely on overly simplistic forecasting models. These often fail to capture shifts in shopper demand – in an uncertain world this lack of transparency results in a significant risk of under-performance.
- Underrate the high cost of misinformed decisions: The consequences of poorly informed decision-making are not trivial. Considerable investments are funnelled into production, promotion, and market positioning based on these forecasts.
You need a digital twin to…
Sales figures alone are not a true indicator of demand. They only reflect what has been sold, not the potential of what could have been sold if shopper demand was fully met. This discrepancy often represents a significant, yet unrecognised, gap in performance for many CPGs.
But how do you solve the problem? Well, imagine if each product in your portfolio had a digital twin. This virtual counterpart wouldn’t just track actual sales but would also consider various demand drivers impacting those sales. This could include:
- Fluctuations due to seasonality and special events.
- Impacts of limited availability caused by production snags or supply chain disruptions.
- Effects of promotional cycles, including how your promotions, as well as those of competitors, can cannibalise sales.
With all of these separated but related components in play, you could not only replay the performance you achieved but also explore what true demand might look like under different conditions by adjusting the scale and weight of each component. You could replay an infinite number of possible pasts so that you better understand your probable future.
…unlock your true demand
Fortunately, demand intelligence platforms can offer a straightforward way to understand what drives your product sales, using your retail trading data. By breaking down and then reassembling the key factors that influence demand, a clear, comprehensive view of the actual demand is presented.
This empowers you to explore and understand both the demand for your products that you met successfully through your retail customers, why that demand varied from its baseline, where it wasn’t fully met, and how to prepare for future demand changes to better match supply.
Want to see SKUtrak in action? Contact us today for a demonstration of how SKUtrak can help you discover your true demand.