The Pandemic Blew Company Forecasting to Pieces

Five strategies to make smarter predictions in the unpredictable year ahead

Demand forecasting — predicting what products or services customers want, how much, and when — is one of the most important disciplines in running a business, dictating decisions on staffing levels, inventory, pricing, supply chain management, and more.

As tricky as demand forecasting can be even in the best of times, Covid-19 has blown it to pieces, jumbling normal data patterns and leaving companies uncertain on how to anticipate consumer demand for their products and services.

More than 850 sports events, concerts, conventions, and other large gatherings were called off in February and March. In one relatively small economic microcosm alone, major tech conferences, cancellations had already cost airlines, hotels, restaurants, transportation services, and others that depend on the gatherings more than $1 billion by mid-March.

But even as those businesses were hurting, the companies that sell electronics, comfort food, and home improvement items have seen business boom as consumers staying closer to home alter their habits. E-commerce soared 76% in June year over year, according to one report.

“Most of the critical demand forecasts that underpin your business could be wrong for at least the next three to 12 months.”

More recently, countries and states have moved to reopen businesses, promising a boost to local economies, while at the same time the coronavirus’s persistence and unpredictable nature constantly threaten a rollback of economic reopenings in the most severely affected areas.

Complicating matters further, the pandemic is playing out differently in various parts of the world. Countries like Germany and Australia have eased restrictions but are now concerned about a second wave, while New Zealand is mostly virus-free. But in the U.S., at least 22 states paused reopening by the end of June to limit the virus’s spread.

It all makes for an excruciatingly erratic and unpredictable environment for companies trying to plan and create forecasts. As consulting firm Bain and Company put it: “Most of the critical demand forecasts that underpin your business could be wrong for at least the next three to 12 months… As a result, most critical operational plans suddenly don’t fit the situation on the ground.” With the pandemic unleashing this torrent of new variables that companies’ forecasting models have never seen before, the only recourse for a business is to be prepared for any eventuality so it can swiftly and smartly respond to any condition. The currently fragmented state of the coronavirus crisis recovery vividly illustrates that the factors that drive demand are complex and multifaceted.

With that in mind, here are five things businesses need to be thinking about:

1. Prepare for both positive and negative demand

During the pre-pandemic economy, companies tended to focus on “incremental,” or positive demand when it came to forecasting. It was all about taking advantage of opportunities for growth. But the pandemic demonstrates that predicting “decremental,” or negative, demand is just as important. As we’re witnessing now, both sides of the equation are critical in successfully navigating this fluid situation. Companies need to be tracking and making the most of factors that could quickly drive or reduce demand.

2. Demand is like energy — it hardly ever just disappears, it gets transferred

During the lockdown, people didn’t stop eating — they just changed their buying patterns. They made fewer trips to the supermarket but purchased in greater volume, shifted to online shopping platforms like Instacart, and stocked up on certain staple items, most notably — toilet paper. This summer, people are still taking vacations — they’re just not traveling as far and using different modes of transportation. This is why Airbnb is experiencing a surge in bookings closer to home. The lesson: Companies must be able to quickly anticipate how consumer demand can shift and adjust accordingly.

3. Expect and plan for pent-up demand

Ironically, while the pandemic crushed demand in some sectors, pent-up demand is becoming a factor with the easing of restrictions. For example, home sales are surging across the U.S., often prompting bidding wars. And it’s not just expensive items that can get snapped up as restrictions ease — McDonald’s and KFC sold out of menu items within hours after the New Zealand lockdown lifted. Businesses around the world need to plan for a similar pent-up demand effect as more consumer-driven activities regain their footing and adjust to the pandemic economy.

4. Pay attention to geographic disparities

The diverse approaches to reopening economies by country and state, and often within a city-level context, means that companies need to be hyper-local in their demand forecasting. It makes sense for a fast-food chain, for example, to focus its promotional spending in states that are farther along in their phased reopening than others.

5. Recognize that half-attended or virtual events have an impact, too

Many sporting events are taking place in venues filled to half capacity or as TV-only games with no fans present. Businesses should understand what material impact these can have on demand. For example, while retail stores, restaurants, and transportation services near venues won’t experience the same level of increase in demand as they would for a game attracting 20,000 spectators, one with 10,000 will still have an impact. And big TV-only events — say the NBA playoffs at Disney World or the return of Major League Baseball — can affect everything from beer sales to pizza deliveries all around the country.

By approaching the pandemic economy with these five priorities, companies can be prepared both to take advantage of the post-Covid-19 business recovery environment and react quickly if that recovery slips. The pandemic has taught the world that the conditions driving demand are far from uniform — it’s an extremely fragmented climate with nuances that businesses must anticipate and plan for.