243. Supply-Chain, “Bull-Whip” Management

Product, Supply-Demand Chaos is Upon Us

Never has a global, just-in-time, balanced economy been shut down by a pandemic. Then, rebooted with:

  1. Massive “quantitative easing” by all central banks
  2. Political, New-Deal-2 stimulus cash to voters and lobbying industries.
  3. With on-going, escalating trade-wars and supply-chain reshoring.

Longer-term, expect unintended consequences. Short-term, enjoy the sugar-high before supply of goods eventually exceeds a saturated, with-hoarding-excess demand. Boom now, bust later. The peaks and troughs will vary across channels and for precise timing – unknowable. But, the “Bull Whip” process and patterns will happen.

Optional homework: wiki “Bull-Whip Effect”. Grok it. Then, ask: how can your company maximize the boom gains? Minimize the bust hits? And, win big in the long-run?

Be Humble. Forecast Probabilistically Better Than Gut-feel Competitors

All distributors look smart during inflationary shortages. But, if the average CEO is happy 1X, then there are 5% of all distributors that are doing 4X better. How? They have better: early warning data; statistical forecast buys; replacement pricing; and allocations to best, long-term customers. When their forecasts do miss by less than average pikers, their teams create fixes with more agility. Win big now and later!

How To Be Top 5%?

Whatever your current information is for supply and demand factors, how can you get earlier warning datapoints?

  1. Get an insider’s view at your top-5, best-long-term suppliers to then monitor what their input availability and lead times are.
  2. Do the same with 5 best customers in each target niche. How are they scrambling? What new sources of goods are they finding? And, when they start to have some extra inventory: the bust is near.
  3. Proactively raise replacement costs for inventory. Only consider meeting prices for best, most, net-profitable customers. Offer no concessions to customers that are historically unprofitable or a competitors’ pets. Reps will beg for allotments and prices for non-core customers. But, be firm: feed your core and gazelle customers and starve the losers.
  4. Rep commissions may well boom and then bust. How will you manage windfall comp on the upside and then rep demands for bust, income-protection?

Bottom Line

Don’t smile into sugar-high gains that may be hitting your channel. Get vigilant. Upgrade your forecasting and Bull-Whip decision-making. Educate everyone about Bull-Whip realities. With 20%+ better decisions than gut-fell competitors, you will win for all of your stakeholders in the short and the long.