Demand Shift + Inflation spells trouble
The first post, “The Ripple Effect”, referenced a real company’s announcement of an overstock situation due to misreading changes in consumer behavior. The focus of our series is strategy rather than analysis of a particular company. The rest of the series is based on a set of fictionalized enterprises instead.
Large screen consumer TVs are the fictitious example selected for discussion of inflationary reactions. Consumers have been stocking up on large-screen TVs for the past three years. In part, this is to replace the “movie theater” experiences and content consumption. In part, this is also a mark of status and aspirational purchasing using disposable income (such as COVID stimulus funds).
Retailers rushed to stock and sell “big ticket” TVs to meet consumer demands. Manufacturers worked to overcome supply chain and then logistics difficulties to meet retailers’ orders. Consumer demands were rapidly translated up the connected chain to component manufacturing. All this is known and straightforward to understand – here EkaLore will look at the chain of demand from a different perspective.
Demand enabled margins to be maintained up the chain and altered production plans for multiple forecast future quarters. Consumer behavior forecasts, often using the latest data science analysis, created orders that are rapidly transmitted to production schedules at semiconductor manufacturers. At each level, ERP software processed data to create plans, orders, and monitor deliveries. A key here is that the ERP software, and its managers, work to translate and forecast demand into the specific components, production and delivery schedules, and work efforts. Human decision-makers increased production orders based on information at hand and allowed for multiple continuing weeks, quarters, and seasons of demand. All of the highly integrated, highly tuned, and sophisticated processes worked together to reinforce the need to produce TVs. Consumers want TVs? -- A global engine will supply TVs!
The next post will look at the assumptions and mental models that lead enterprises to misread changes in consumer demand and buying patterns.
You can read the rest of this series at https://www.ekalore.com/the-ripple-effect
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