You find a coupon in your local newspaper offering something you are very interested in at an attractive price. You go out of your way to go to the store to buy it, only to find to your great disappointment that the store is sold out. They also report that there are none in the distribution warehouse and they can’t tell you when (or even if) they will be able to get more.
Is there anything more frustrating or more damaging to a store’s reputation than offering a sale and then not having the merchandise available when the customer comes in to get it? This happens more often than you might think, and is often a matter of the right hand not knowing what the left hand is doing, so to speak. The retailer or the marketing department plans the promotion without letting manufacturing and distribution know what they are doing and what the effect will be on demand. The additional product needed does not get produced or is not in the right place in the supply chain to support the promotion. The result: disappointed customers, lost business, damage to reputations, wasted promotional efforts.
It is sometimes desirable (or necessary) to offer promotions or incentives to boost sales. Promotions can take the form of discounted pricing, changes in packaging or advertising, package deals, incentives for resellers or sales reps, or other means of increasing sales, usually for a limited period of time. Promotions can be an important part of demand management or demand shaping that a company uses to help meet corporate objectives, promote specific products, or perhaps to cause problems for the competition.
Assuming that the promotion is effective, sales will increase and some new and perhaps unexpected demands will be placed on the logistics and supply chain. This could cause availability problems that could sabotage your promotion plans.
In the operations management business, we talk a lot about sales and operations planning (S&OP) wherein the company develops a sales plan (forecast and marketing plan) and a production plan to support it. The important thing about this plan is that it is coordinated and gives both sides (supply and demand) a clear set of objectives that each is committed to meet. That plan should include all promotional activities and an estimate (forecast) of what that will do to demand. If the surge in demand is a surprise to operations, not only will it be difficult to respond with enough product soon enough, planning systems might overreact and make too much product following the sale — if they assume that the surge is a new level of demand and not a one-time event. The situation is made worse when, as often happens, there is a temporary reduction in demand right after the promotion as the market absorbs the extra product sold during the promotion until normal demand returns.
This is just one illustration of the importance of information and collaboration. If one part of the organization is unaware of what another area is doing, it will be unable to properly support the program and that could cause it to fail. Promotions are legitimate and valuable sales tools. Just make sure operations knows about them far enough ahead of time to be able to support the changes in demand.
Reprinted from Portsmouth Herald / Seacoastonline.com –August 26, 2013