Peloton - A Supply Chain Cautionary Tale

The woes of Peloton continue to be reported by the media as it goes from the "must-have" consumer item of the COVID-19 pandemic to one no longer in high demand.

What happened to Peloton could easily happen to many retailers and will likely serve as a case study for logisticians for years to come.

So, what happened? COVID-19 hit in 2020; gyms temporarily closed, leaving consumers looking for alternative workout solutions. Enter Peloton, an exercise equipment and media company. Sales of its equipment and connected workouts skyrocketed, but Peloton's supply chain did not flex along with sales.

As a result, in its shareholders' letter for the quarter ending September 30, 2020, the company noted, "We will continue to work diligently to address delivery and support issues, as we have long prided ourselves on providing superior customer service. With an understanding of what is required to return to our normal standards, we continue to invest in technology, manufacturing capabilities, and people to help us scale and meet the needs of all our customers."

The company further noted a considerable backlog of orders and shared that it did not expect to return to normalized order-to-delivery windows in the US prior to Q2 FY 2021 (ending December 31, 2020).

After a series of expensive moves such as chartering an airplane to import its exercise equipment, expanding production locations, and announcing an investment in its first US manufacturing facility, Peloton announced earlier this year that it would delay the opening of its new Ohio factory and cut back production at other manufacturing facilities because of declining customer demand.

Flexibility and Agility

The pandemic has caused significant disruption across many supply chains, but it has also emphasized the need for flexible and agile supply chains. Flexible, agile supply chains are those that are proactive and adapt quickly to consumer demand, market changes, and volatility.

To achieve an agile supply chain often requires technology investments that provide visibility across an organization's supply chain. Being able to "see" what's happening at each leg of the supply chain is great, but the ability to "act" is even more critical. For example, Peloton experienced inventory delays and took measures to correct this, including chartering a plane. But this was a reactive move, and remember, an agile supply chain is proactive.

To be proactive, one must be able to utilize supply chain data to forecast transportation capacity, inventory, and other supply chain costs as they relate to current and expected demand.

Peloton's failure was its inability to forecast customer demand correctly. Demand for Peloton equipment was high as long as stores and gyms remained closed and there was no COVID vaccination.

But once stores and gyms reopened and more consumers received COVID vaccinations, demand for Peloton equipment fell to pre-COVID levels.

Forecasting

Forecasting demand is both an art and a science and typically uses historical sales data. Using only historical data in today's environment is not helpful because of the increasing risks that supply chains face today, such as pandemics, natural disasters, political upheaval, labor strikes, and more.

Instead, predictive analytics uses a combination of traditional statistical forecasting and machine learning algorithms.

According to business analytics software provider Sas, machine learning is a branch of artificial intelligence based on the idea that systems can learn from data, identify patterns and make decisions with minimal human intervention.

Utilizing predictive analytic tools helps companies identify opportunities and problems before they occur. Predictive analytics can be a competitive edge and a cost-saver for successful companies.

Peloton realizes missteps it made, and at last check, it has published several job openings within its Supply Chain Analytics team for data, analytics, and predictive modeling roles.

Hindsight is always 20/20, but lessons from such companies as Peloton serve as reminders that companies can no longer operate like they did pre-pandemic. Advanced planning and forecasting are critical to ensure capacity without breaking the bank, having the right amount of inventory at the right time, and achieving complete customer satisfaction.

The current environment is constantly changing, and the need for flexible, agile supply chains is greater than ever. These types of supply chains are top-tiered, and the winners are those that add predictive analytics and forecasting to their supply chains.