Summer is firmly upon us. With it comes specific challenges and opportunities for businesses. Here we take a look at what a seasonal business needs to consider to make the most of the fluctuations in demand it can bring, and how forward planning and adjustment are crucial to their long-term success.
It’s the time of the season…
Seasonal peaks and troughs in demand are a fact of life for most businesses, whatever their size. A retailer selling beach products may be swamped during the summer months, yet close down for winter. Meanwhile, a gift retailer may receive the majority of orders in the runup to Christmas.
Many seasonal businesses struggle to either capitalise on the increased demand of peak periods, or survive the slow seasons.
In order to be able to ride the fluctuations of demand that seasonality creates, seasonal businesses need to have a firm handle on three key areas:
Stock and supply chain
With these areas covered, your seasonal business will be better-placed to have a successful peak (and fallow) season, this year and every year. How should they be approached? It’s all in the planning.
With the right level of planning, a business can optimise its operations to harness the good times, and make the most of the slow seasons.
To be able to plan ahead effectively, it’s important to understand the nature of your seasonal business cycles. What are the key factors that determine the peaks and troughs in demand? What payments need to be made and when? Demand may rise and fall, but many payments need to be made throughout the year, regardless of revenue. Consider when you need to start to focus the business in advance of peak seasons, and at what points in your annual cycle you experience working capital pressure. This will help you to plan your adjustments accordingly.
Stock and Supply
When seasonal demand peaks hit, your supply chain must get your products to market at the right time, in the right quantity and at the right price. When dealing with variations in demand, it’s important to keep your supply chain operation focused on what’s necessary: solving key issues, mitigating risk and capitalising on sales opportunities.
Innovative supply chain management and intelligent stock control are fundamental parts of seasonal success. Having an effective demand-led plan for your supply chain and stock strategy will ensure that you’re not left with unfulfilled orders or overstocked warehouses that tie up working capital.
Using historical trend data, perhaps by utilising a BI platform or point of sale system to look at past sales, can help with seasonal forecasting and operational and financial planning. For example, you’ll be able to analyse your sales data as well as market trend information to see if it’s the first spell of warm weather that impacts demand, or the start of the school holidays.
Be prepared for the unknown
It’s also a good idea to build scenario planning and exception management into your planning too. Create contingency plans for unusual occurrences such as unseasonable weather. These are the first steps towards turning seasonal demand spikes or troughs into opportunities for honing your business.
Know your customers
In order to understand your seasonal demand cycle, you must learn everything you can about your market. Speak to your customers. Find out how they want products delivered to them. Discover their preferred terms of purchase. The answers to these questions will help drive your supply chain decisions and processes.
Speak to your suppliers
Good supplier relationships form the basis of a robust and agile supply chain. Negotiating better or variable payment terms that allow you to ride the seasonal peaks and troughs in working capital is easier when you’re coming from a healthy position. Maintaining good supplier relationships throughout the year means that you can discuss payment plans that are in line with your cash flow variations.
If you’re anticipating seasonal variations in demand, or you can see a bumper (or dry) summer on the horizon, then speak to your suppliers. Keep them in the loop.
This also means that you can arrange increases in stock in advance of peak periods and hopefully spread the cost throughout the year. Perhaps making larger payments when cash flow is healthy, and lower payments in slower periods. Having access to the right working capital finance such as a supplier payments finance product can be extremely helpful in this regard.
A Business Continuity Institute Supply Chain Resilience Survey carried out in 71 countries found that 80% of supply chain professionals had experienced at least one major supply chain disruption in the past 12 months. Maintaining a close relationship with your suppliers will also help to minimise these potential disruptions through closer cooperation.
Optimise your stock
Keeping the right level of stock in your business to meet demand yet remain cost-effective is a challenge for all seasonal businesses.
What will your business do if you experience demand that outstrips your forecasting? Keep replenishing as inventory sells out? Retain an inventory buffer in case of unplanned demand? Keeping excess warehoused stock eats into your profits and reduces liquidity.
Maintaining a ‘just-in-time’ inventory is one way to maintain a cost-effective stock control system. However, this requires solid forecasting, and flexible, highly responsive suppliers.
Your supply chain must be agile enough for stock to be available at the right locations at the right time. Peak seasons often come with peak competition. With omnichannel selling now accounting for more and more sales, missed opportunities can be quickly snapped up by a competitor that’s showing available stock.
You must align your supply chain systems and logistical capabilities to meet the increases in demand and fulfil orders. Speak to your logistics providers well in advance to make sure they are well-prepared.
Paying your suppliers early to secure discounts can help make stock purchasing in advance more cost-effective. This is where the right financial product can come into its own.
If you’re experiencing a spike in demand, it can be exciting. However, it’s important to make sure you don’t ‘overtrade’ by selling so much that your business runs out of cash to buy the resources needed to fulfil the orders you’re taking.
Also, while revenues might go up in the summer and then drop in the winter, bills including rent, utilities and other fixed costs will remain constant. This means that your cash flow needs to be robust enough to withstand the fluctuations in demand. As well as the ongoing costs associated with running a business. Effective cash flow management is key to achieving year-round success.
Optimise your cash flow cycle
To really make the most of high-demand seasons, you need to be sure to optimise your cash flow cycle. This means minimising the time it takes for cash to come into your business, and (if possible) maximising the time it takes for it to leave. Reducing gaps in cash flow will make your business stronger, more resilient and ready to seize opportunity as it arises.
Get money coming into your business as quickly as possible. Make your credit decisioning faster. Invoice promptly and accurately. Be efficient with your collections.
Weigh up the cost of securing early supplier payment discounts against the benefits. There is a fundamental conflict of priorities between you and your suppliers. Traditionally you’ll want to retain cash in your business for as long as possible. Yet they reward for early payment.
It’s all about finding the right financial support to help you optimise your available working capital. Pay4’s flexible supplier payments facility can help you to secure early payment discounts without depriving your business of its lifeblood: cash flow. You can optimise your commercial terms while at the same time improving your supplier relationships.
Put some money away
The time to manage your cash flow smartly is when times are good. Because when times start to get bad, it’ll already be too late. Be disciplined in building up your cash reserves in preparation for slower periods.
Summer can also be a challenging time for businesses, due to many employees taking their longest period of annual leave. This can often coincide with seasonal spikes in demand. Workload can then outstrip the number of staff available to fulfil it, causing increased stress, dilution of effort and attention, and failure to capitalise on opportunity.
Taking on temporary workers to cover the deficit left by holidaying staff can help maintain productivity levels and protect morale. Recruitment agencies often allow for advance booking of temporary skilled staff for seasonal demand spikes or to cover absence due to summer holidays. They can even recruit for you in advance based on your business forecasts.
Yet it’s essential you strike the right balance. Although it’s important that you employ enough staff to facilitate a healthy and well-ordered operation, having workers sitting around doing nothing is an indication of poor management.
It can be tempting to over-staff when demand is high and times are good. If your seasonal business is experiencing a boost in revenues, employing more staff or increasing hours can be seen as necessary and a way to capitalise on the high season. Yet labour costs are often a company’s largest expense, so be sure to remain diligent in monitoring them. Every pound saved during a high season will magnify in importance come the slower seasons.
Be a seasoned business owner
Experiencing a peak demand season can be an exhilarating opportunity. If done right, you can see your seasonal business succeed in ways it never has before. However, it can also place pressures on your business that can prove dangerous or even fatal to its continued operation. Having a well-planned, well-researched demand-led strategy is key to its survival and success. With an agile supply chain, optimised stock levels, healthy cash flow, and the right staff working hard, you’ll maximise your chances of seasonal business success.