It looks like summer is at its peak: It’s 35 degrees in Berlin today, and I’m looking forward to some yummy ice-cream with my son in the park. The Germans love ice-cream, and on a day like today, everyone is outside cooling off with this sweet temptation. Here in Germany, you never know how long summer lasts. Yesterday it rained all day. Summer can be gone quickly, just when you get used to it.
Uncertainties in ice-cream production
So I begin to wonder – just how do ice-cream producers deal with this uncertainty? Sure, they have statistics and sales data to understand demand and popularity of products per season, but what about the weather? The weather is highly volatile and cannot be predicted to determine what to produce when and where. As seasonality is an important factor, ice-cream producers have to deal with great uncertainties and fluctuation in demand. Demand is high when it is warm outside, and lower when it´s cold, but when is the ideal moment to prepare for summer and start the machines? In the end it’s all about having a reliable demand plan.
A key challenge is to not over-produce and stock up on excessive inventory, but at the same time be ready for summer – which can come out of the blue – by securing on-shelf availability and fulfillment. Producers cannot start the machines when the first warm days of summer are getting close. That´s too late. Typically they start prebuilding inventory at the end of the year. How? With reliable demand forecasts plus sound inventory and production management. Changing production from chocolate to vanilla on one machine, just because we suddenly see a high demand for chocolate, results in costly change-overs and shorter production runs. We already learned the factors that influence the demand plan. But what’s more important is the ability to change the plan, see the effect of these changes on the supply chain and act accordingly.
Smart planning to the rescue
To ensure the right products are available in the right quantities at the right locations during the peak season, tactical planning of the supply chain is a must. The planning and optimization of the inventory build-up starts typically 6 to 8 months in advance. With high visibility of every aspect of the supply chain, changes are reflected right away: These changes in demand can lead to a later start for pre-production, which lowers inventory and reduces working capital. You then need to perform a thorough analysis during the season to adjust S&OP plans when factors change. Capacity, for example, needs to be reserved when additional production is required for best-selling items – something which becomes visible in such an analysis.
As you can see, ice-cream production comes with wide range of products and variations. We´re only human and tastes will differ. So if production capacity becomes the bottleneck for one resource, turn to tactical planning for visibility on alternative solutions. If the production process allows it, producers can quickly make changes to adhere to the demand plan.
Hitting that sweet spot
For ice-cream producers, it’s a balancing act between order fulfillment and inventory and production costs. Even though ice-cream is not as perishable as milk or meat, it cannot be stored for too long. So inventory that is not consumed will most likely not last until next summer.
Again, I learned that sound planning is everything. Like I said at the beginning: Summer can come and go quickly in Germany. Let me get some ice-cream for my son now and enjoy the sunshine while I still can!