Between Manufacturing and Merchandizing

By Andrew K. Reese

The National Retail Federation predicted back in September that the 2007 holiday season would see U.S. retail sales rise 4.0 percent against the 2006 figures, to $474.5 billion. It would represent the slowest holiday sales growth since 2002, when the numbers ticked up 1.3 percent. NRF Chief Economist Rosalind Wells noted at the time that retailers faced several economic obstacles, including the weak housing market and the ongoing credit crunch, which could make consumers reluctant to open up their wallets in search of holiday cheer.

It should be pointed out that the NRF's prediction of 5.0 percent sales growth for the 2006 holiday season fell short, with sales actually advancing just 4.4 percent year-on-year, according to the federation's own figures. Not that supply chain executives would likely fault the NRF for getting the numbers wrong — supply chain veterans know, perhaps better than anyone, that prognostication is a tricky proposition, and the only thing certain about a forecast is that its most probably wrong.

Which is why Michael Mayoras, CEO of supply chain provider RedPrairie (www.redprairie.com), is excited about a recent trend that he has been seeing in his customer base, which includes retailers, consumer products manufacturers and distributors. They are moving to put in place processes and systems that would more closely link events "on the ground" in the retail center to what is taking place in real time back on the manufacturing shop floor. "Manufacturers are looking to understand what's happening now at the retail point of sale and then adjust their supply chains accordingly," Mayoras says.

Ten years ago, he continues, supply chain wasn't necessarily a part of that kind of conversation at a manufacturer. Marketing and merchandizing decisions remained siloed on the sales and marketing side of the business, while supply chain was left to handle the execution side. "There's more recognition now that supply chain has a very tight tie to how products are arranged and moved on the shelf," Mayoras says, "so supply chain is in the middle of all those conversations." Furthermore, companies are trying to figure out how to use their supply chain application assets to tie point-of-sale intelligence back to the plant so that they can better allocate the right mix of resources in a given shift, based on a given forecast or demand signal, and do that more accurately and more quickly than in the past.

At the end of the day, planning and forecasting will remain critically important, and enterprises will continue to invest resources to improve their planning capabilities. Naturally, all the best forecasting in the world won't help if consumers aren't prepared to spend in the first place. But by understanding how to move products from the factory floor into a demand channel in a more timely way, supply chain can help ensure the effectiveness of the merchandizing programs aimed at separating consumers from their cash. And that should make for a happy holiday season for companies willing to put supply chain at the center of their manufacturing and merchandizing strategies.

What supply chain trends are likely to affect your bottom line in 2008? Write me with your thoughts at areese@sdcexec.com, or share your views online at www.sdcexec.com/forums/. Either way, I'll look forward to hearing from you.

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