By now, the initial turmoil of the coronavirus pandemic has faded somewhat, and manufacturers are busy composing their action plans and accounting for all the ways their industry is reshaping. No one knows how long it will take for the pandemic-recession to run its course, nor the full scope of its impact, but there are several new shifts in consumer buying behavior that manufacturers should consider when charting their course forward.
Not all manufacturers sell direct-to-consumer (DTC), but the shifts in consumer buying patterns can have ripple effects through the supply chain that ultimately impact manufacturers’ own customer base and manufacturers themselves. While specific circumstances will differ depending on a manufacturer’s subsector, customer base, financial standing, whether they were deemed “essential”, and more, there are strategies all manufacturers should consider for responding to these shifts.
The current economic plateau could just be a pit stop before we see a dip into another steep contraction. All manufacturers are back open for business, but there are no guarantees it will be a smooth path to recovery. A potential COVID-19 resurgence may force another wave of closures or lead to a double dip recession on both a local and national scale. A second wave could also lead to panic buying for certain products — like masks or latex gloves — or dramatic decreases in demand for other products, as happened this spring. Manufacturers need to be able to detect these market shifts in real time so that they can respond quickly and mitigate the damage. Relying on historical demand data alone has pitfalls, as the initial COVID-19 outbreak showed. Manufacturers need to be able to forecast demand based on what is currently happening in the market, which requires the ability to measure demand in real-time.
Improving demand forecasting through Industry 4.0 technologies can allow manufacturers to react to periods of uncertain and volatile demand faster. While traditional forecasting relies on historical data to forecast sales, analytics-enabled forecasting accounts for multiple factors. Industry 4.0 can enable more advanced demand forecasting that leverages real-time data to identify demand signals, shifting market conditions and even spot nascent buying behavior. Industry 4.0-enabled demand forecasting can help improve manufacturers’ overall agility, which is critical to success amidst volatility.
At the onset of the pandemic, there was a spike in panic buying of certain products due to the uncertain duration of the crisis. Increasing demand was outpacing supply: a situation exacerbated by consumers focusing on stockpiling and bulk-buying nonperishables in preparation for extended quarantines. Spend on groceries and household items increased exponentially, and consumers purchasing large amounts of food soon after shelves were stocked led to empty grocery store aisles. The possibility of a COVID-19 resurgence amplifies the likelihood of this phenomenon reoccurring.
The shift to bulk-buying is already causing manufacturers to rethink just-in-time inventory strategies. The pandemic has proven that just-in-time inventories are not built to withstand unexpected, large-scale disruptions such as COVID-19. Panic buying can cause just-in-time inventories to fail. To avoid shortages, manufacturers should consider shifting inventory toward key markets or customers, developing alternate sources of supply, and increasing stockpiles of critical materials or products. If there’s any lesson manufacturers should take away from this crisis, it’s that their supply chain should be prepared for disruption before it happens, so that they can better mitigate turbulence with minimal impact to their overall business.
In a crisis environment where supply is compromised and stock is limited, customers are forced to ease up on the specifications of their orders. Additionally, when demand is down, it becomes pricier for manufacturers to produce several different variations of the same item. During a recession, customers tend to prioritize cost and speed of delivery over product variety. Consequently, the manufacturing industry has seen a shift away from customization as access and availability trump product variety.
Manufacturers need to look at their product suite and determine if they need to streamline or simplify what they offer. Streamlining their product portfolio can help manufacturers to avoid excess inventory while cutting costs. Insights gleaned from advanced demand forecasting capabilities can inform these decisions, and even help identify shifts in customer buying behavior. To capitalize on an emerging trend, manufacturers may be able to repackage their existing products in new ways.
For example, a maker of school supplies could shift from packaging items individually to offering preset bundles that cover all at-home learning needs and offer direct delivery. A food manufacturer that makes school lunches could pivot to producing pre-packed meals for remote students.
Just a few months ago, social distancing mandates and lockdowns barred nearly all foot traffic from brick and mortar stores, causing a 91% increase in consumer digital presence from March-June as the majority of consumer transactions shifted online. Retailers were the first to feel the brunt of this shift and were forced to ramp up their e-commerce platforms. It’s now evident that COVID-19 has accelerated the digital economy and brands with the strongest omnichannel capabilities will be most successful going forward.
Manufacturers will want to take a page from the retail omnichannel playbook, whether for improving their digital customer service capabilities or adjusting their selling model. Some manufacturers may decide to capitalize on the e-commerce shift and shift to selling DTC, which may lead to supply-chain disintermediation. Prior to the pandemic, 56% of manufacturers were already selling DTC, according to BDO’s 2020 Middle Market Industry 4.0 Benchmarking Survey, and we expect that number to increase. Customer service was also cited as manufacturers’ top target for supply-chain improvement (24%), a core component of building out DTC capabilities.
At minimum, manufacturers will need an online order form, if they don’t have one already, and ideally an online store. Manufacturers should also consider emulating retailers’ experiential strategies that leverage augmented or virtual reality to showcase new product or service offerings. Manufacturers could even offer virtual factory tours — or use holoportation to provide a more immersive experience.
The bottom line to all these changes is that manufacturers need to introduce greater resiliency and responsiveness into their operations. This will enable them to weather disruption better and respond more quickly to shifting market conditions. Although the road ahead is full of uncertainty, manufacturers that consider these strategies will be better prepared for any volatility in the coming months and be well positioned to reenter growth mode.
Eskander Yavar is national leader of manufacturing at BDO.
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