Magazine Article | January 18, 2007

Planning: No Longer The Best Plan

Source: Innovative Retail Technologies

Today’s most savvy retailers have learned to navigate the global supply chain.

Integrated Solutions For Retailers, February 2007

Throughout my entire retail career, it has always seemed logical to front end virtually every supply chain process with a good, solid plan. However, in today's global economy, although planning and forecasting still play a role, their effectiveness is diminished by the very nature of the global supply chain. Retailers experience compression in the planning and forecasting windows, and the longer lead times drive greater demand and supply variability. With variability comes risk, and, with risk, we generally see increased safety stocks. 

Today's most savvy retailers have learned to navigate the global supply chain with alternatives beyond simply adding safety stock. This requires a shift in focus from planning and forecasting to execution and the agility to respond to change — especially as inventory gets closer to the customer. With this in mind, part of your global sourcing strategy must include how you will respond and manage fulfillment from freight forwarder through customer sale. Key focus areas should include dynamic order management, multiechelon warehouse management, and customer-centric store operations.

The Global Supply Chain Influence
Dynamic order management strategies create greater flexibility in the rigid global supply chain. One example might include postponement. Postponement is when the retailer waits as long as possible before deciding which products, in which quantities, will be shipped to each store and/or DC. For example, bulk shipments from an Asian vendor may arrive on the west coast where they are broken down at a transload facility based on more current inventory positions and consumer demand information.

With improved supply chain visibility and agile processes, some of the most proactive global retailers further reduce safety stocks and increase speed to market through a multiechelon approach to warehouse management:
  n Stocking Strategies — Safety stocks can be significantly reduced through strategic deployment of inventory across a multi-DC network. Low-velocity and high-value products are stocked in a single stocking location or perhaps dual locations (e.g. each coast). Even a store might serve as a central stocking point, servicing other nearby stores. 
  n Flow Strategies — By leveraging on-hand inventory, demand levels, and inbound in-transit shipment information, planners can predetermine (before the shipment arrives) merchandise and quantities to be cross-docked for more rapid shipment to the most "needy" stores.

Whether you are dealing with a complex global supply chain or merely sourcing domestically, the greatest area of opportunity to improve execution and agility is within the store itself. A definitive study on retail out-of-stocks concluded that 72% of retail out-of-stocks are a "direct result of retail store practices," and 25% of the time the product is in the store's back room. Today's technology provides visibility into customer orders, inbound shipments to the store, existing in-store inventory levels, and real-time POS activity. Visibility enables associates to determine which boxes should be put away in the stockroom, which should go immediately to the sales floor for emergency replenishment, which should be staged for an upcoming promotion, and which should be taken directly to customer service for pickup later that day. It is imperative to empower and arm sales associates with critical information that can avoid losing a sale or, even worse, a customer. 

Planning and forecasting are still important steps in every supply chain, but the realities of today's global supply chain have significantly diminished their effectiveness. Effectively managing and executing orders, warehouse processes, and customer-centric store processes will have a much larger effect on improving the customer experience, differentiating yourself in the marketplace, and improving your operational efficiencies.