Supply Chain Trends and Issues: Our Weekly Feature Article on Important Trends and Developments in Supply Chain Strategy, Research, Best Practices, Technology and Other Supply Chain and Logistics Issues  
  - Feb. 19, 2013 -  

Supply Chain News: Walmart Email Says February Sales Are Down Sharply - What Should a Consumer Goods Demand Planner Do?

Our Expert Panelists Say No Need to Overreact, but It's Time to Make Sure You Get Some Facts; Follow the Trend Lines, not the Headlines

  by SCDigest Editorial Staff  

There was interesting news in the retail world at the end of last week, as internal emails from a Walmart executive were leaked to Bloomberg, saying that thus far February sales have been a "disaster" for the chain.

Bloomberg says the emails state that Walmart had the worst sales start for a month in seven years, as payroll-tax increases hit shoppers already battling a slow economy.

SCDigest Says:

Steve Steutermann, from analyst firm Gartner, says this is just another example of the increasing demand volatility almost every company is facing.

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"In case you haven't seen a sales report these days, February MTD [month-to-date] sales are a total disaster,” Jerry Murray, Walmart's vice president of finance and logistics, said in a Feb. 12 email to other executives. "The worst start to a month I have seen in my about seven years with the company.”

Walmart later said this was just Murray's own view and that it may not be entirely accurate. Nevertheless, the news seems to be responsible for sending Walmart's stock price down more than 2% on Friday. Murray is, after all, in charge of finance.

That obviously could be worrisome news for vendors to Walmart and maybe even to consumer goods companies generally - and for demand planners with responsibility for getting the forecast right.

So, when a demand planner hears that Walmart news, what actions if any should he or she take?

SCDigest decided that was an interesting enough question that we would ask some demand planning experts for their thoughts on the subject.

Karin Bursa, vice president of marketing for supply chain software provider Logility, which does a lot of work in the consumer goods sector in demand planning and more, had the bright idea to ask a few supply chain executives from Logility's customers on what they would do with the news.

Those responses "were surprisingly consistent" across companies, Bursa said.

She offers below consolidated perspectives from these VPs of supply chain from leading branded and private label businesses that serve Wal-Mart:

"We would do very little in this specific instance," those execs generally said, according to Bursa. "Forecasting is about managing error. When normal error at the SKU by plant level is 30% (which is considered very good by our industry standards for this level of granularity), what is a 2% possible decrease in volume? Anyone trying to manage at that level is well into diminishing return on forecasting investment. We will watch the trend and determine if we should adjust the statistical method to something more aggressive to current trend."

The consensus, Bursa said, was also that "Worst case, we might have a little extra finished product before the trend is recognized. Walmart is big enough that the product will be consumed and not become obsolete. When demand planners start using management overrides because they read an article, it's time to get them out of the job. If you are using a robust supply and demand planning system and understand your error rate performance, then you need to trust the system to help the business respond appropriately. The best approach is to build the intelligence into your model and avoid manual overrides."

Robert Nardone, former vice president of supply chain planning at Unilever North America and now consultant and educator, agreed there is nothing to get too frantic over, but noted that depending on the product category, a consumer goods company might want to dig down a little deeper.

"As any demand and replenishment planner knows there are a lot of moving parts to a sales forecast and it is tough to react to a single report. The devil is always in the details," Nardone told SCDigsest. "While Walmart had a weak January and a slow start to February, many retailers reported a decent January, with results up 4-6%. However, it's a good bet that rising prices - such as the cost of gas up over 10% since the beginning of the year, and the paycheck hit from the social security tax increase - are going to impact some discretionary spending , things like restaurant meals, big ticket items, vacations, and luxury goods."

Therefore, he said, demand planners for products that fall into the discretionary spending bucket should be managing the forecasting process and inventory levels much more closely.

"If Walmart is being more negatively affected because their typical consumer is more impacted by the current economic situation, I would also manage Walmart specific SKU's more tightly," Nardone added.

Steve Steutermann, a vice president for supply chain research with analyst firm Gartner, says this is just another example of the increasing demand volatility almost every company is facing.

"We have done some deep quantitative research in the past year, and the expectation from companies is that demand volatility will continue," Steutermann told SCDigest. "Most organizations are reliant on a demand forecast and lagging indicators to react. In this case, the lagging indicator is "Days Inventory on Hand (DIOH)" at the end of the month, as well as an over forecasted demand plan. But more granular demand visibility is critical."

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That, he says, means a consumer goods supply chain must be able to make sense of retailer data in aggregate and do it daily, in order to truly sense demand and respond in shorter cycles. And, he adds, having only Walmart Retail-Link data is not the answer.

He believes the typical consumer products company would react in one of two ways: (1) Overreact to the Walmart news and reduce the coming month forecast and production plan, or (2) Not react at all because one month does not make a trend

Something in the middle is needed, he says. The key issues, he believes, include whether "other retailers are experiencing the same kind of impact at the shelf from increased taxes and delayed tax returns, and whether demand will improve in March because of tax return timing."

The companies that are in the best position are those "who utilize demand sensing technologies to sense demand daily," Steutermann adds. "They are in the best position to manage their supply chains closer to consumption. Most of the leaders utilizing demand sensing technologies use a 7 day lag, not a 30 lag period like traditional demand planning functions. In essence, they would have had a significant head start in making any trade-off decision."

Lisa Kustra, founder and president of consulting firm Plan4Demand, which does a lot of work in the consumer goods sector, said the key is to "follow the trend lines, not the headlines."

"As a demand planner, we would be looking at consumption oe point of sales data to understand any trending issues. When did it start, and how it has been trending over time? Because Walmart's overall sales are down, it does not mean necessarily that it has impacted my brand's sales. Or has it? What does the data tell me?"

She added that "If I am a replenishment planner, I am certainly considering promotional volumes going into the store."

The bottom line she said, is that consumer goods companies should look at trending data analysis and not just this rumor of a trend.

"Point of sale data should be analyzed over several weeks to understand what the trends really are for our company and SKUs," Kustra told us. "I would certainly be scrutinizing that information closely against historic data patterns."

Danny Halim, VP of industry strategy at JDA Software, also says a measured response to the news is the most appropriate.


"It is certainly news about which a demand or supply planner should be aware, but not one that should result in a knee-jerk reaction to supply chain plans," Halim says. "Slashing forecasts and inventory plans across the board would certainly be an example of this. A demand planner should continue to pay attention to the overall market trends and indicators before reacting to any specific news about one customer, even one as large as Walmart."


The key questions, he says are these: Is Walmart's one month sales decline and lower forecast representative of the overall market, or more Walmart specific? Is the decline in Walmart sales a sign of a decline in consumer spending as a whole, or is it just in specific product categories?


"If a manufacturer does need to make adjustments, it is likely they will need to take the analysis deeper understand for what the SKUs and geographies there are real changes in demand," Halim noted. "This is where a shelf-connected supply chain, if the company has already implemented this approach, will provide more actionable insights than looking at data or trends only at the aggregate level," Halim added.

Added SCDigest Editor Dan Gilmore: "Well, obviously company executives need to know facts. It wasn't that many years ago, for example, that a large number of consumer product companies blamed missed financial quarters on a drop in Walmart orders during its "inventory deload" program."

He added that "I agree that there is no need to overreact, but if someone at Walmart says sales are a "disaster" and it's the worst start to a month in seven years, which must include the recession period, there is potential supply chain and financial risk here that needs to be taken fairly seriously by someone."

How do you think consumer products companies should react to a potential Walmart "sales disaster" so far in February? Are our expert commentators right on - or all wet? Let us know your thoughts at the Feedback section (email) or button below.

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