Why companies struggle every holiday season

The holiday season is a familiar challenge for manufacturers and retailers, yet many companies behave as if something extraordinary is about to happen as the third quarter concludes. Demand plans are reevaluated, inventory and capacity scrutinized, and numerous meetings held. The realization often dawns too late that it's too late to expedite shipments, reposition inventory, or adjust promotions.

However, it's too late to build the management capabilities needed to effectively handle uncertainty. Many companies target the wrong issue. While a forecast and demand plan can help, predicting holiday demand with perfect accuracy is impossible. A forecast is an informed estimate, while a demand plan converts that expectation into a business commitment, detailing what is to be sold, the assumptions supporting it, and the resources and actions to achieve it.

When committing to a plan, the organization prepares for uncertainties by making the assumptions behind the plan explicit. Effective management during the holidays involves scenario planning, considering what decisions are required for potential future scenarios. While protecting inventory availability is instinctive, inventory is capital at risk.

Decisions must be made intentionally about where risk is acceptable and why. Technology can reveal issues, but it's people who make the decisions. Clear decision rights, appropriate authority, and the ability to act when circumstances change are crucial. The holiday season serves as an annual stress test for business management.

If navigating the fourth quarter requires special measures, it may indicate that the normal management system needs improvement.