COVID-19 And TP (Bet You Didn't Forecast This!)
My RSR partner Paula and I have been pondering how best to cover the many angles presented by the coronavirus, and how consumers, retailers, and manufacturers are responding. There’s so much! But one of the angles that everyone can agree is interesting is in how the pandemic is affecting supply and demand.
You don’t have to look too far to see this effect in action. By now, most of us have seen the pictures of empty shelves at Costco, Walmart, and the local grocery store on social media and even on the front pages of newspapers. Worried consumers are stockpiling – toilet paper!
Let’s just stop for a minute and take stock of the situation (pun intended). First of all, of all the products that a grocer, drug store, or general merchant is likely to carry, TP might be among the simplest to forecast. It isn’t particularly sensitive to the peculiarities of localized demand, and consumption is indexed very closely to the size of the population.
And the supply chain isn’t very complicated. In America, about 90% of the toilet paper consumed is made in the USA. Because toilet paper is the perfect embodiment of a “hi-cube/low-value” product (meaning it’s big and bulky and isn’t a particularly profitable item), there is typically a relatively small amount in the supply chain – days’ supply are usually measured in weeks, not months. The product is made to order, but manufacturing facilities can churn out a steady stream of the stuff with enough to meet normal demand. It’s as straightforward a supply chain as you could wish for.
Let’s also remember that the symptoms of the coronavirus affect the respiratory system, not the digestive system. So unless consumers are trying to be cost conscious by using TP instead of Kleenex to blow their noses, the hording of toilet paper is driven by emotion, not common sense.
And there it is: the current run on TP demonstrates the profound effect of sudden shifts in consumer sentiment on demand. To illustrate this point, for years I’ve used an old example of (then teenage heartthrob) Justin Timberlake showing up in a hot pink tee-shirt and how that affected sales in fast fashion outlets. Now I’ve got a more up-to-date example to use.
This brings us to some recent data RSR has gathered for a study (sponsored by Llamasoft) on the opportunities for AI-enablement in the supply chain. To date, most of our respondents are from the UK and North America, but the message is pretty clear: retailers want next-generation forecasting capabilities that model demand using new data like geo-market, weather, competitive, and social. RSR has been writing about this for a few years, and we’ve seen the steady rise in interest by retailers in what new data analytics can do for them. The “short version” is that retailers want to be able to respond more quickly to sudden changes in demand while those changes are occurring, not after-the-fact.
Regardless of retailers’ keen interest in what AI-enabled analyses can do for them, there’s clearly a long way to go before every retailer who wants those capabilities has them. Here’s preliminary look at the responses:
|Value vs. Status of AI-Enabled Supply Chain Capabilities|
|Demand Forecast Modeling using macro indicators (geo-market, weather, competitive, social, etc.)||74%||43%|
|Automated forecasting processes||52%||36%|
|Current Demand vs. Forecast Analysis & Rebalancing||46%||36%|
So, would better data analysis and forecasting capabilities help retailers and manufacturers be prepared for an irrational run on a product like toilet paper? I guess that would depend on whether a planner thought it worthwhile to run several scenarios on the product category.
The point is that if the tools are fast and easy to use, it might become routine to consider different demand scenarios for all products and categories – and that would be a good thing. And it turns out in this case that insights from social media might have triggered a few alarm bells. What is being labelled the “toilet paper apocalypse” is trending on Twitter right now.
Take a look: https://twitter.com/i/status/1237634019593826304