Why 2022 Will Be the Year of Optimization
With a recent increase of online demand and a slowdown of global supply chains, companies in 2022 will lean heavily on optimization, powered by data and analytics, not only to survive but to thrive.
- By Troy Hiltbrand
- December 17, 2021
As we enter 2022, two economic forces will define the coming year. The first is the dramatic increase in demand, especially through digital channels. The second is the pressure building in the supply chain to get those goods moving effectively both internationally and domestically.
With societal lockdowns through a large portion of 2020, consumers quickly discovered the accessibility of goods through digital channels. The U.S. Department of Commerce estimated that online commerce increased by 32.4 percent between 2019 and 2020. This has put significant pressure on businesses of all types to step up their game concerning their digital commerce channels and to focus on using analytics as part of the customer experience model.
Coming out of the pandemic in 2021 has created another challenge for businesses -- traffic jams in the transportation of goods both internationally and domestically. This includes the cargo ships moving goods across the ocean to the trucks transporting shipping containers to their final destination, even to those containers not reaching the places where they are needed. This is being amplified by shortages of workers and mandated pandemic practices that are creating restraints on transportation companies. Ultimately, it leaves businesses scrambling to better understand how to effectively service their customers.
The increased demand and decreased supply require that businesses be hyperaware of the data surrounding their supply chain and delivery cycle, and will become of great concern as we move into 2022 and throughout the year.
Companies will increasingly shift their focus to using analytics to manage through this upcoming challenge and those who master it will come out much stronger on the other side. I predict that the en vogue word of 2022 will be optimization. Two areas will rise to the top in terms of optimization: replenishment and pricing/promotion.
Replenishment will become an increasingly important topic for companies on both the supply side and the demand side.
As companies work to make sure they have the right stock in their inventory to meet their customers' demands, they have to know what the slowdowns in the global supply chain will do to impact that target. They will need to leverage advanced analytics to run modeling and simulation to ensure they are ordering the right amount early enough to have it on their shelves (or available for delivery) when consumers demand it.
As an added service to customers, companies will work to help them understand when they need to place their orders so they can get them in the time that they expect. This is especially pertinent for consumable products. If there is an upcoming shortage of toilet paper or paper towels, a company that can convey to its customers to purchase early will win increased loyalty. They can only do this if they their analytics have produced accurate customer profiles: who their customers are, what their buying patterns are, and how the supply chain slowdowns will intersect with those buying patterns.
Pricing and Promotion Optimization
Another way companies will be working to ensure they insulate themselves from challenging times is through price optimization. In the past, this has been mainly focused on the demand side. Companies have used either dynamic pricing or discount optimization to motivate consumers to buy, but this year there will be additional facets to this challenge that can be solved with prescriptive analytics.
With pricing optimization in the coming year, it will not only be about revenue generation but will also focus on both demand and supply management. Pricing optimization will become a delicate balance of increasing prices of goods that are in limited supply while decreasing the cost of goods of products that are in stock. Pricing optimization will become a bit of a shell game trying to subtly persuade consumers away from some products (e.g., those in short supply) and guide them gently to other products.
A company that can effectively do this will be able to retain positive customer loyalty and keep revenue high. Again, this requires solid analytics about who your customers are and their particular purchasing triggers, and then to integrate those triggers into other parts of your system so you can use that data to divert customers to products that can be delivered on time.
Along with the effective management of pricing through analytics will be the adjustment of the product promotions. This will span discounting (an effective way to handle pricing) to the placement of your products in the online digital cart. Getting the products with the highest available inventory levels in front of your customers while decreasing the visibility of less available products is an effective way to gently nudge customers to make the decision most beneficial for both parties.
A Final Word
In 2022, we will continue to see companies under commercial pressure and strain that is as novel as the virus that caused it. Just as countries had to find new and innovative ways to deal with the pandemic, companies will be required to step up their game to a new level to come out strong. The key for the coming year will be to leverage data analytics as part of a business strategy and focus on both supply-side and demand-side optimization.
About the Author
Troy Hiltbrand is the chief digital officer at Kyäni where he is responsible for digital strategy and transformation. You can reach the author via email.