Chapter 4 of your Heizer/Render/Munson text discusses many widely used forecasting techniques. And most companies use exactly these techniques. However, historical based techniques proved inadequate in a pandemic. Scotts Miracle-Gro fertilizer is a case in point. As The Wall Street Journal (Sept. 16, 2022) writes: “Never in the modern global economy have businesses seen such a rapid shift from shortage to glut.”
Scotts was in the middle of its selling season in 2020 when Covid-19 shut down much of the global economy. Scotts’ production had to respond, but like many firms, response was chaotic with production disruptions caused by sickness and an abundance of caution which eliminated entire shifts. It also soon became clear that homebound families were gardening more. Keeping stores stocked became a problem. And in spite of shortages, sales were up 20% in 2020 and another 10% in 2021.
So just months ago, Scotts was bracing for the biggest summer ever. After two years of struggling to fill store shelves, the company had ramped up production to catch up with consumer demand for lawn seed, fertilizer and other garden products. Massive investments in new manufacturing capacity were about to pay off as Scotts prepared for the usual rush of May orders from retailers looking to replenish their stocks. The CFO assured investors that Scotts was in a good place on inventory and that the firm was expecting banner 2022 sales.
But the orders never came. The pandemic was over, and inflation hit. Retailers cut orders. Scotts has cut 450 jobs and more layoffs are coming. Production schedules have been cut. Available cash is a fraction of what it was. Nobody is getting bonuses. Scotts was largely a casualty of bloated inventory at big retailers like Walmart, Target and Home Depot. Those companies didn’t foresee the sharp reversal in buying behavior that has taken place in recent months as shoppers, squeezed by inflation, cut back on furniture, electronics and other goods and shifted spending to travel, food and fuel.
Classroom discussion questions:
1. Chapter 4 discusses seasonal adjustments to forecasts. How much would seasonal adjustments have helped Scotts in the past two years?
2. Your text (see page 138) suggests a forecasting technique know as Stagger Charts. How might Scotts implement this technique?