Last week's INFORMS Conference on Business Analytics and Operations Research drew over 700 attendees to Huntington Beach, CA. I had the pleasure of serving on the conference selection committee, and wanted to share this content from one of our invited speakers, Kean Chew of HAVI Global Solutions.
The Numbers Behind Burgers and Fries: A Holistic and Dynamic Single View of Demand
HAVI provides analytics and supply chain services to companies such as McDonald's (with almost 14,000 US locations). If supply chain management were simple, then major corporations wouldn't need the professional services of HAVI -- but they do. This is because supply chains can be easily disrupted in two kinds of ways:
Uncontrollable Disruption: Earthquake, tsunami, fire, hurricane or other natural disaster.
Controllable Disruption: Marketing promotions.
Kean summarized his presentation with these bullets:
- Goals of supply chain is to have the right products at the right place, time, and cost. The goals are the same regardless of industry (e.g., Quick Service Restaurant, retail, and big box stores). Does not matter if we are talking about burgers and fries, jeans and shirts, or toilet paper and laundry detergent.
- The journey to achieving supply chain utopia sounds simple but are quite elusive because of speed bumps, roadblocks, detours, and other surprises along the way.
- Disruptions, or speed bumps, include natural disasters (e.g., tsunami in Japan last year and Hurricane Katrina a few years ago).
- Disruptions are also caused by marketing promotions. With marketing promotions, it is no longer business as usual (e.g., BK’s BOGO, Denny’s free Grand Slam, and McDonald’s use of promotional packaging materials). When not well managed, marketing promotions can feel like disasters, which are exacerbated in a supply chain ecosystem that has many parts and players.
To emphasize this point, he brought up the interesting case of a "promotion gone awry" when KFC offered a free grilled chicken meal in 2009, which they had to retract:
"Following an unprecedented and overwhelming response...KFC has announced that it can no longer accept the free coupon..." (KFC press release, May 7, 2009)
[SIDE COMMENT TO READERS: KFC grilled chicken is really really good, so I can understand the overwhelming response. I just wish my local KFC restaurant weren't out of grilled half the times I go there.]
[SIDE COMMENT TO KFC MANAGEMENT: Perhaps you ought to let HAVI start managing your supply chain so my local KFC restaurant will stop p****** me off.]
Kean points out that when asked, different entitites in the supply chain ecosystem will recommend/provide different production numbers to support a marketing program. He describes this as akin to the cartoon about describing an elephant from different vantage points.
- Promotions introduce volatility and uncertainty to the supply chain ecosystem. For supply chain to have a fighting chance of success to support marketing promotions, the whole ecosystem has to subscribe to a single view of demand (hence the holistic part of the title of the presentation).
Finally, Kean utilized a "waterfall chart" to create a more holistic view of demand. Different industries will have different building blocks in the chart, but they commonly include things like "single view of demand," "system inventory," "safety stock requirements," and "promotional lift."
- As marketing plans are likely to change throughout a promotional lifecycle, it is important to be dynamic by updating the single view of demand. Examples: When there are additional media planned, price discounts, mobile coupons, and the like.
- During the promotion it is also important to be dynamic by steering and shaping demand -- especially when demand comes in higher/lower than expected. To enable this would require visibility and revisions to the single view through reforecasting/recalibration.
For more information on this presentation and approach, you can contact Kean directly at email@example.com.