Cannabis Industry: Dealing with Change – Part 2

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In Part 1 of this blog series, we presented a hypothetical scenario in which a fictitious Canadian cannabis producer established a corporate culture primed for dealing with change. The Director of Market Access and Government Relations identified an impending event, which she believed would have a significant impact on demand for the firm’s products, and she wanted to ensure the company’s executives and its cross-functional digital planning teams were aware of and able to analyze fully the expected impact on the firm’s operational and financial performance.

Today, we discuss how our story’s heroine and her organization responded to this hypothetical scenario, and we provide some thoughts for how your organization can prepare for similar situations.

Planning for the Event

With the support of the firm’s executive team, our story’s heroine first presented her market findings during the Monthly Demand Review meeting. The cross-functional digital planning team was then tasked to further investigate and answer a series of critical questions the firm would need to be prepared to answer if public reimbursement became a reality. The questions were as follows:

  1. What percent of current recreational sales will shift to the medical sales market if public reimbursement occurs and how quickly might the shift take effect?
  2. How will the potential shift impact product mix, that is, to what degree will we see increased demand for capsules and oils?
  3. To what degree will these types of product mix shifts cannibalize our existing product sales?
  4. How many net-new clients will we gain?
  5. How quickly will net-new clients engage and what percent will become repeat customers?
  6. Which sales channel strategy or strategies should we pursue, for example, should we sell exclusively through our existing e-commerce platform or should we establish sales partnerships with specific retail pharmacy chains or medical clinics, recognizing the increase in tele-health taking place during the COVID-19 crisis?
  7. What service level targets should we establish for products sold into this channel?
  8. Which inventory strategies will best allow us to balance our target service levels optimally while maintaining our over-arching working capital constraints, and how much safety stock will be required to implement these strategies?
  9. Given the variability in material and production lead times, how quickly do we need to begin placing orders to ensure we can meet the new product demand?
  10. Given the current and expected work center and resource capacity predictions, do we have sufficient capacity to meet this existing demand?
  11. Given a potential need to counsel more medical patients, will we need to hire additional patient counselors to support this new demand and what should our hiring strategy be?

Process Enablement

As discussed In Part 1 of this blog series, our fictional company had recently transformed their supply chain planning processes, leveraging a set of Integrated Business Planning best practices focused on the rapid exchange of ideas and collaborative decision making across functional silos.

The firm’s digital planning community also embraced the concept of what-if scenario planning, which would help them provide the critical answers executive management needed to evaluate the myriad of potential operational strategies related to public reimbursement.

It’s worth noting that an aspect of their enhanced process, which would prove so vitally important during their evaluation of public reimbursement scenarios, was the automated planning of the steady-state portions of their business. Planners simply would not have enough time in the day to forecast each individual item, to adjust forecast values manually to account for variables such as price changes and promotional events, and to create and evaluate all the potential what-if scenarios needed to support the critical decisions the firm needed to make regarding public reimbursement.

This notion of automated decision making, which generally allowed the firm’s planning teams to manage by exception, was both a foundational tenet of their revamped integrated business planning process and a key capability identified in the functional requirements of the supporting planning system selected and implemented by our heroines’ firm.

Technology Enablement

The aforementioned requirement was a critical factor in the firm’s selection and implementation of Vanguard Predictive Planning™.  The monthly process began with an automated import of the firm’s most recent historical sales data, at which time the rolling demand forecasts and optimized supply plans were automatically generated. This initial first-pass plan was based on predictive forecasts generated by Vanguard’s Artificial Intelligence engine designed to minimize forecast error rather than simply applying the model or method that would “best fit” the historical data.

Additionally, pre-determined inventory management strategies were applied based on the firm’s ABC classification rules. For example, some item classes were managed using a target fill rate strategy, while other classes were either managed by a coverage, intermittent schedule, or economic order quantity strategy.

We should note here that Vanguard was also used to auto-classify forecasted items based on a set of company-defined business rules, such as total volume, total revenue, and other traditional classification metrics. In this regard, the application of the firm’s pre-determined inventory strategies was dynamic as items were re-classified month to month.

Another key aspect of the plans generated by Vanguard was the incorporation of Vanguard’s Monte Carlo Simulation capability, which augmented their traditional point-value forecasts with high-low confidence intervals. This band of uncertainty, along with calculated uncertainly of material and production lead times, allowed Vanguard to optimize the firm’s safety stock, reorder levels, and production volumes automatically as well as order timing, subject to the pre-determined inventory strategies and production capacity constraints mentioned previously.

With these first pass plans as a starting point, Vanguard’s internal business process management capability was then used to identify a series of company-defined exceptions, such as the identification of forecast items with a calculated Z-score above a company-defined threshold or new products with insufficient history to auto-forecast.

Vanguard’s workflows, configured to support and guide the firm’s revamped Integrated Business Planning process, also enabled the critical communication and collaboration that was needed to ensure representatives from each function within the firm’s digital planning team were able to add their critical knowledge to the planning inputs in an organized and auditable manner. A robust assumptions management capability allowed for forecasting and planning assumptions to be documented and audited.

It was this foundational ability to automate the core planning process and provide a mechanism for evaluating what-if scenarios quickly that enabled our story’s heroine and the firm’s digital planning team to provide timely insights relative to the potential public reimbursement scenario.

In this regard, planners were able to incorporate the uptake of sales quickly in the medical market into its ongoing planning process, leveraging Vanguard’s spread-curve generator as well as supersession and comparable forecast adjustments.

Additionally, planners used the ability to override the pre-determined inventory strategies to determine if new classification rules would be needed to balance service levels, costs, and working capital requirements in this market better.

Best of all, not only were planners able to generate this wide range of what-if scenarios quickly, but they were also able to present and compare these scenarios during the monthly executive review meetings leading up to the anticipated ruling on public reimbursement.

The firm’s executive team was able to weigh the pros and cons of various scenarios efficiently and effectively, and the firm ultimately felt confident in its ability to predict how this new regulation would impact demand for their products. Perhaps more importantly, they felt confident the strategies they planned to employ would best position them to maximize the new regulation’s impact on their overall business while minimizing the risk of over or under reacting to the changing market dynamics as their new reality unfolded.

Is your organization primed to deal with change?

The fictional company described in Parts 1 and 2 of this blog series was fully primed to deal with change and to create and evaluate rapidly what-if scenarios designed to ensure they maximize their success should this change occur.

It may seem as though your organization is light years away from implementing such a robust Integrated Business Planning process or the modern planning tools needed to support your already over-worked teams. We have good news. Yes, this type of planning transformation initiative requires commitment, but the journey does not have to be as long, or painful, as you might think.

JPSG Consulting is well versed in the mature processes we’ve presented in this series and the corresponding white paper, The State of Supply Chain Planning in Canada’s Cannabis Market. Additionally, we’ve purposefully partnered with Vanguard Software Corporation, because our exhaustive study of vendors in this space gives us confidence that their market-leading Integrated Business Planning solution can and will support the best practice processes we’ve worked so hard to develop and hone with customers facing the same planning challenges as you and your firm.

Take the first step to priming your ability to deal with change by contacting me directly at I look forward to helping you upgrade your talent, mature your processes, and adopt Vanguard’s modern and scalable planning system.

About the Author

Boris Gorbatyuk, Ph.D., is the President of JPSG Consulting.  Boris helps clients in the pharmaceutical, nutraceutical, consumer goods, and cannabis industries increase customer service levels and reduce inventory levels and supply chain costs through advanced planning adoption disciplines and lifecycles.