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Efficient promotion management requires greater forecasting accuracy and should not be based solely on past data and experience. A very important factor here is a collaborative planning process for the retail and consumer goods industry. This process has long been
incorporated in existing Collaborative Planning, Forecasting & Replenishment (CPFR) initiatives, which is the right direction to take on an issue that exhibits excessive supply chain inefficiencies paired with high shopper dissatisfaction.

Demand Uncertainty & its Implications - How to Cope-up?

Sudden changes in demand are usually problematic in any supply chain setting; without quick reaction, supply does not meet demand. One aspect is, there have not been that many promotional activities for the same product in the past. Moreover, using data that is, for instance, a couple of years old could be chancy. In promotional forecasting, one of the main challenges is developing store-specific estimates which is usually the differences in the promotional responses at different stores.

The need to account for uncertainty in the planning decisions can essentially be traced back to the core functionality of planning models, which is to allocate resources for the future based on current information and future projections. The foremost consideration in incorporating uncertainties into the planning decisions is the determination of the appropriate representation of the uncertain parameters.

Two distinct methodologies for representing uncertainty can be identified. These are the Scenario-Based Approach and the Distribution-Based Approach. In the former approach, the uncertainty is described by a set of discrete scenarios capturing how the uncertainty might play out in the future. Each scenario is associated with a probability level representing the decision maker’s expectation of the occurrence of a particular scenario.

An enterprise can adopt two strategic ‘postures’ when faced with demand uncertainty. It can either position itself as a shaper or as an adapter to combat uncertainty. In the former strategy, the company aims to restructure the demand distribution so that the associated downside risk is limited while the upside potential is retained.

By contrast, in the adapter strategy, the enterprise does not attempt to influence the uncertainty level in the market. It controls the risk exposure of its assets, such as inventory levels and profit margins, by constantly adapting its operations to unfolding demand realizations.

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* Contributed by: -
Sauraraj Nath & Vikrant P. Bawane,
Post Graduate Programme in Agribusiness Management (PGPABM) II,
National Institute of Agricultural Extension Management (MANAGE), Hyderabad.