As supply chain and operations leaders work to return to “normal” patterns of demand fulfillment, it’s clear that absolutely nothing is business as usual. No company progressed through late Q1 and Q2 on the same paths and using the same projections as they had developed earlier in the year (and even at the end of last year when COVID-19 first arose). As a result, gathering input from the sales organization and using it in the sales and operations planning (S&OP) process is more critical than ever.
While some industries have experienced only minor disruption to their demand and associated operations planning, many manufacturers are grappling with how to effectively account for the major volatility now present in their historic demand patterns. Simply expecting future sales to resemble past sales — perhaps with the usual slight trending or seasonality factors — is not adequate to properly plan for post-coronavirus customer activity. At this point, all demand should be treated as new demand.
So where does that leave the countless manufacturers and distributors who have essentially been forced to hit the reset button? More importantly, where does this leave manufacturers and distributors that had customers controlling a significant portion of their volume, such as those with concentrations of 20% or more? The impact of that demand shift in such a large customer base is immediately visible and challenging to navigate.
How CRM Fits in
Customer relationship management (CRM) processes and tools have traditionally been viewed by supply chain and operations teams as residing exclusively in the marketing, sales or service domains. Sales input during S&OP process exercises has often been in the form of validating statistical forecasts generated by planners or providing high-level estimates of incremental or decremental business volume associated with customer acquisition or defection. Yet well-managed CRM processes and data can provide a significant improvement in operational forecast accuracy.
CRM tools are designed to track potential future sales by individual customers in a given time period. While many companies may only track incremental sales (i.e., new business) and only at an aggregate revenue level of detail, the systems they use are capable of much greater precision. A well-managed CRM process can — and should — capture both ongoing and incremental (or decremental) sales by customer, by month (at a minimum) and by product family (at a minimum). In fact, many organizations will run incentive programs for their sales teams that are geared around specific customer segments, timing and product groups and often use their CRM platforms to track such performance.
Of course, CRM data (like any other) is only useful if it is properly maintained. Ongoing run-rate demand estimates may be quite reliable, but any estimates of new or lost sales — especially those that are being used for operations decisions — should be constantly adjusted with the appropriate probability filters. These include likelihood of gaining (or losing) the business and the likelihood of it occurring in the expected time period(s). This same logic applies as companies attempt to forecast the ramp-up (or permanent loss of business) in the post-coronavirus economy.
An effective CRM process can provide valuable insights (and serve as a validation) for exactly where and when expected demand will occur. Instead of relying solely on a top-line demand estimate for a given product in a given period, CRM data can point to which customers are expected to comprise that volume, and what portions are expected from as-yet unknown customer purchase activity. Thus, it is an additional tool in a planner’s arsenal for ensuring that supply chain (procurement and production) decisions are based on the most accurate assessment of demand.
The Concentration Problem
When using CRM data to determine which customers have and are likely to generate future demand, it may become clear that certain customers or groups of customers comprise a significant portion of the overall customer base. In fact, this may already be known to your organization simply through day-to-day operations and financial reports. Regardless of whether high customer concentrations were known or come as a surprise, what matters most here is that they represent a risk to your organization.
Virtually every industry saw some downturn in one form or another. Even if your customers were in one of the industries that experienced staggering growth during the past few months due to their products being in high demand, there will still be an impact to your organization that will make planning future demand difficult. Demand will lessen in some segments while others will see significant spikes in demand. It’s important to remember that these shifts don’t represent the new normal, however. Just as everything changed in the span of a few weeks, it can change right back — or into something completely different.
Taking It to the Next Level
Because of this potential for another rapid shift, it will be imperative for your sales organization to dig into your segments to truly understand what’s been happening in their businesses, what’s going on right now and what they expect to see in the future. This data must be represented in your CRM process, but this is just the foundation for the data. To give leadership the insights they need to guide the S&OP process, intelligence platforms should be implemented alongside the CRM process, with data from the latter being pushed into the intelligence tool to provide leaders with a high-level dashboard for decision-making.
Now, this approach isn’t for everyone. If your demand pattern is selling to a larger number of customers fairly consistently, this approach may not yield insights you’re not already aware of. But if your sales lead time is lengthy and it takes time for you to complete an order, then this approach can yield more actionable insights. For example, aircraft manufacturers only have a finite number of customers. Thus, their customer concentrations are higher — say 30% from one customer, 25% from another and then three smaller customers at roughly 15%. With such large concentrations, it can be difficult to know what’s coming, from which customer and when.
Leveraging CRM data from the sales organization into an intelligence tool using the appropriate filters can give leaders the ability to more effectively plan their operations, supply chain and other critical areas of their business so they don’t become overextended, tying up valuable resources in goods that aren’t going to be moving anytime soon. Conversely, it helps leaders plan for potential surges in demand so they’re not caught off-guard, which can lead to service challenges and customer loss.
Dave Nelson, principal, River Rock Advisors, has more than 30 years experience in corporate and consulting leadership roles. He has worked for industry leaders such as Cleveland Consulting, Philips, Kimberly-Clark, DXC, Avanade and TCS. Dave has a BS in Industrial Management and an MBA in Management Information Systems from Indiana University.
