Recently, I heard Ritsuo Shingo chastise a company president for the seasonal fluctuation in their business. “No good,” he said. It’s sales and marketing responsibility to dampen that variability.
Shingo knows what he’s talking about. The son of the legendary Shigeo Shingo, a consultant who helped design the Toyota Production System, Ritsuo is the former president of Toyota China, was involved with NUMMI and Toyota Motor Kentucky, and is the current president of The Institute of Management Improvement. When Shingo speaks, you would do well to listen.
Shingo’s criticisms have all the subtlety of a sledgehammer, but the complaint about seasonal fluctuation got me thinking. Variation in customer demand is hell on a company, which is why we work so hard to reduce it -- and to the extent possible, without building buffers of time, inventory or workers.
Of course, if you’re a toy manufacturer, you’re probably out of luck: About half of all toy sales occur around Christmas, and good luck in convincing parents to limit gifts under the tree so that they can make life easier for Mattel.
But if you’re not in the toy business, you probably have greater control over your seasonal demand variation than you think. Here’s how three companies followed Shingo’s advice to have sales and marketing reduce fluctuation in consumer demand.
Nike: when I worked at Asics back in the early 1990s, there were two footwear seasons -- Spring, which delivered to retailers in March, and Back To School, which delivered in August and September. That was pretty much it. Factories had to gear up for huge shipments in those months, which was a huge stress on the entire supply chain. But by the mid-1990s, Nike persuaded retailers to adopt a four-season program: Interim (late May to early June), Back to School, Holiday (October/November), and Winter. Back To School and Spring were still the biggest seasons, but by spreading its product launches throughout the year, Nike eased the burden on their internal staff as well as their factories and logistics teams. Nike’s clout actually moved the market -- retailers started asking all athletic footwear companies to provide new offerings four times a year. Now, 20 years later, Nike introduces new products on a monthly basis.
Zara: in an industry that traditionally delivered only two collections every year -- one for spring/summer, and another for fall/winter -- Zara is the undisputed king of fast fashion. The company can design, produce, distribute and sell its collections in as little as four weeks. Consumers know that if they see something they like, they have to buy it now, because it’s likely to be gone by their next visit. Obviously, there’s an enormously sophisticated supply chain behind the scenes that most companies would have difficulty matching, and the company is vertically integrated from manufacturing to retailing. But the key point here is that Zara broke the traditional norms associated with the fashion calendar. They exploited the innate human desire for novelty and freshness (or, if you’re cynical, they trained consumers to expect something new and fresh on every visit). In so doing, Zara revolutionized the fashion apparel business by eliminating the huge seasonal demand variations that plague the industry.
Outdoor Goods Company (Unnamed): A few years ago, I consulted to an outdoor goods company whose warranty department got into trouble every summer. Usage for this company’s products is overwhelmingly concentrated in summer months, when most people start doing their outdoor activities. Like most companies in the industry, they had an ironclad warranty for their products -- but unfortunately, consumers wouldn’t send their products in for repair till the summer started, when they were just a week or two away from their trips. The sudden spike in warranty requests meant that lead time for most work exploded from less than a week to five or six weeks. We reduced the fluctuation in demand by sending out regular emails to customers from January-March, reminding them to send in their products for service early. We even promised a free logo t-shirt for people who sent in their item before April 1. This promotion not only increased the number of items that came in early, it got more brand logos on the street. The warranty department essentially functioned as a marketing tool for the company. With more level demand, the warranty department was able to keep its turnaround time to under a week, even during the peak summer season.
Three companies, three industries, three ways to reduce variation in demand: create two new seasons (Nike); get rid of seasons altogether (Zara); provide incentives to consumers to shift their demand patterns (outdoor goods company). With some creativity, you can figure out ways to reduce fluctuation in your own demand. Or you can just accept “no good.”
Dan Markovitz is president of Markovitz Consulting, a firm that helps organizations become faster, stronger and more agile through the application of lean principles to knowledge work. He is a faculty member at the Lean Enterprise Institute and teaches at the Stanford University Continuing Studies Program. His book “Building the Fit Organization,” just received the Shingo Research Award.