Magazine Article | August 1, 2001

Internet Changes Supply Chain Point Of View

Source: Innovative Retail Technologies

Retailers thought the Internet was going to steal customers from their brick-and-mortar operations. Now that it has established its e-value, retailers have warmed up to Web-enabled supply chain applications and online fulfillment methods.

Integrated Solutions For Retailers, August 2001

Retailers no longer fear that the Web will cannibalize brick-and-mortar store traffic. Consumers confirmed that they would stay loyal to traditional shopping methods while taking advantage of newer channels. However, during the Web-takeover scare, retailers were forced to adjust their fulfillment strategies to accommodate individual customer order sizes. This made them alter their thinking in terms of large pallet shipments, and in the process it turned into a stroke of efficiency in disguise. "If brick-and-mortar retailers take advantage of what has come out of e-commerce consumer shipping methodology, they can apply it to themselves. A small department in a store could be replenished the way a consumer is replenished," said Earl Lipson, CEO of SKULogix (New York). This concept, partnered with Web-enabled fulfillment solutions that provide extended supply chain visibility, was derived from what was once thought the foe of the retail industry.

Reconsider Warehouse Operations
Warehouses and the systems that managed them traditionally took orders, fulfilled them, and made sure they got to their destinations. But retailers needed more from the process. "In the 1980s, retailers shut down their old warehouses because they were inefficient and often served to accumulate excess inventories," Lipson said. "They decided to declare war on inventory by holding nothing back at their DCs and flowing it all directly through to their stores." Retailers attempted to minimize inventory by passing it directly to retail selling floors. But this process did not look at what products would best sell in each location, causing inventory to puddle in the stores. At the end of the selling day, stores would end up either out of stock or with excess inventory that would have to be marked down.

Now retailers are analyzing their POS (point of sale) and inventory data to determine the best locations for merchandise. This, partnered with Web fulfillment influences, has changed the way retailers order and distribute their merchandise. Some have reintroduced the traditional warehouse in the form of a distribution center (DC) or third party logistics (3PL) location. Retailers use them as holdback facilities where inventory enters, and instead of the entire pallet of red T-shirts shipping to a Chicago store, retailers split the case and only send the amount traditionally sold according to POS data. "There is tremendous potential for retailers to take advantage of the precision, speed, and visibility advantages developed for the B2C (business-to-consumer) e-commerce world. A simple retail application is the ability to break caselot requirements, and support a multi SKU (stock keeping unit) split-case shipment to a retail store," Lipson said. This method of operation also works from a vendor to a retailer. Instead of a retailer buying 12 small red shirts, it can buy three smalls, three mediums, and six larges if a store is known to sell out of the large shirts faster. It treats stores as individual customers with unique buying trends to make the most of inventory.

Web Offers World Wide Visibility
Whether through a 3PL or a retailer's DC, a warehouse needs to manage the orders and group them properly, making it a more valuable asset to the organization. One aspect that Web-enabled warehouse systems deliver is supply chain visibility. "Retailers had no visibility as to when products were coming or going. They knew they were getting three yellow microwave ovens, but there was no visibility as to when those ovens were going to come from the factory in Asia," said Evan Schumacher, founder and vice chairman of Celarix.

A traditional WMS is passive. It waits until the product gets into the DC, and then once it is in inventory, the system processes the order and ships it to a store. But stores want better information about when their products will get there. Fulfillment software, tied into a retailer's WMS and the Internet, can increase the visibility from the supplier to the warehouse so the inventory planners have a clear view of the supply chain. "Most WMSs tell retailers only when product left the manufacturer or the DC - not when it will arrive or if it will be late. There wouldn't be any alerts or messages indicating that things went wrong," Schumacher said.

The change is that warehouse management no longer takes place strictly within its four walls. The Internet and Web-enabled solutions connect everything about inventory together. Those outside the enterprise (factories, transportation vendors, customs) and the internal systems that feed into a WMS (a forecasting system) or an ERP (enterprise resource planning) system share information creating a real-time environment. Whether it be via EDI (electronic data interchange), XML (extensible markup language), flat file, an e-mail attachment, or manual entry, any branch of the chain can participate regardless of its technology sophistication level. "Retailers do all this via the Web because visibility is what is going on while product is in motion," Schumacher said.

Web applications are also deployable globally, thus reducing the cost of managing it. With offices all over, it is easier for a company to use a Web-based application rather than have its IT department go to multiple countries to install the product. The Internet has proven that it has a place in the retail industry besides serving as a channel for e-commerce. Those companies that take advantage of the enterprise-wide flexibility offered by the Web will see the results in their bottom line.

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