How To Successfully Handle Changes in Customer Demand

I’ve been writing in this blog about how small and mid-sized businesses (SMB) can put Centage to use and have a year-round practical tool that can be used effectively unlike the “let’s finish the budget preparation chore and shelve it until next year” approach that so many companies unfortunately take.

I was using the software the other day, working with drivers (one of the key components that can be set up to drive the budget) and thought of a client company on the West Coast that ran into an interesting challenge. For some reason (I’m sure there were several of them), they experienced a sharp increase in customer orders and bookings, significantly increasing their backlog in a short period of time. While this seems a good problem to have, the company quickly realized that their existing facilities and processes couldn’t accommodate the new business.

There was simply no sufficient manufacturing and warehousing space to accommodate the additional required material, parts and new equipment needed to complete these orders. It also seemed that this new level of booking was going to become the new norm and possibly continue to increase.

Is this a unique situation, catching the company by surprise with not much that can be done, other than the usual scrambling to fill customer orders, reorganizing the work space, purchasing additional production equipment, increasing material orders with suppliers, hiring additional personnel, all the normal things companies do to keep up with increasing demand? Is missing customer order due dates going to impact the company in the long term? Many other questions must be asked:

• Is a new production facility required to house these additional materials and activities?
• What about new cash requirements and additional financing?
• Is there nothing that can be done about it?

I really don’t think so. I think this is due to poor planning.

Be Prepared For Increases In Customer Demand

‍In the case of this specific company that prompted this blog article, I don’t think their marketing, sales and operations where in proper alignment, and communication was poor or insufficient at best. This increase in demand should have been anticipated, perhaps not the magnitude of the increase, but at least the fact that certain product lines were going to require larger production space, new equipment, additional skilled workers, new financing arrangements, etc.

‍How To Prepare For Changes In Customer Demand This is where using drivers in planning becomes very important and having the right software solution is just as important. When using Centage, when you set up and customize these drivers according to your business model (there is an unlimited number of drivers and “Based Upon” elements that can be set up), you can create various scenarios where varying degrees of customer demand (hence sales forecasts) can drive certain expenses, inventory demand, need for additional workers, additional capital equipment and production space.

While possible, overnight increase in customer demand does not occur regularly. There is always a reason for it, and that reason usually lies within the company. Insufficient or poor communication will result in inadequate planning. Not monitoring an already flawed plan and budget year-round and not reforecasting along the way and comparing with actual results every accounting period will only worsen the potential outcome. But you have to have proper tools to do so, and using drivers is a great tool available to you in Centage and other leading planning and budgeting software solutions. Use these tools regularly and you won’t get caught unprepared.