He is quick to add, however, that he fully respects the customers' desire to control their own inventories and to own the management of that inventory. But Jones believes that the analytical capabilities of the demand planning solutions present an opportunity for retailer and manufacturer to collaborate more closely to optimize inventory levels across the supply chain. "We know the product very well, and they know their business very well, and together I think that we can develop a result that's going to yield high service levels to their customers, which are really our customers in the end," he says.
Mastering Product Cycles
Collaboration around data also is on the mind of Dave Haskins, who is executive vice president of development with Webplan, a provider of Web-based planning solutions for manufacturers.
As Haskins sees it, product cycles in the retail sector are simply getting too short, particularly in red-hot segments like consumer electronics. At the same time, supply chains in the consumer sector are becoming elongated as manufacturers increasingly source components or entire products offshore. "Because of the distributive nature of the supply chain and the variability inherent in more retail-oriented products, the biggest challenge that companies are facing is the level of complexity involved in the whole business process around managing a demand change and then being able to quickly determine the supply chain cost of that change," says Haskins.
Haskins points out that the new extended consumer supply chain involves original equipment manufacturers (OEMs) that don't actually manufacture much, or most,
of their products anymore, and contract manufacturers (CMs) that stand one, two or more tiers away from end customers. This disconnect sets up a natural tension: For the OEMs, the imperative is to continuously introduce new widgets to take advantage of the burst of consumer demand and premium prices that the latest and greatest gizmo can command; but for the CM, the objective is to control costs and reduce inventory exposure to a minimum. This tension has tended to play out in the negotiations between the two parties over who pays how much for the level of flexibility necessary to respond to rapid changes in consumer demand, and if the two parties have collaborated, their work together has been primarily to try to synchronize their respective plans.
But this adversarial approach ignores the real issue, Haskins asserts. "It's not about a planning problem," he says, "because there's a limit to how far you can go with trying to maintain some kind of synchronization of plans." Rather, Haskins calls on OEMs and their contract manufacturers to work together, using a Response Management-type solution like Webplan's, to create a unified plan that can incorporate both demand signals coming into the OEM and inventory and production capacity data from the CMs. (Other solution providers offering this "single set of data" approach include Adexa, Demantra, Prescient Systems and Supply Chain Consultants). Establishing this sort of "single version of the truth" would allow the parties to come to a shared understanding of the costs of flexibility in the supply chain. "The OEM may be focusing on making sure that the forecast is accurate, whereas the CM is making sure that the supply side information is accurate or looking at what kinds of constraints they might have to meet a demand change, but the key is that both parties are able to look at the same thing."
From "Clobberation" to Collaboration
Lori Mitchell-Keller also believes that greater collaboration is increasingly a requirement in the retail supply chain, and she says that consumers' capricious nature makes this sort of closer retailer-supplier relationship more of a necessity. As evidence, Mitchell-Keller, who is senior vice president of global marketing and solution management at supply chain solution provider Manugistics, points to a survey, commissioned by her company and unveiled at the National Retail Federation conference, which revealed that during the most recent holiday season 58 percent of Americans who did not find the item they were shopping for on the shelf at one store walked out the door and went elsewhere. (Similarly, Stephen David, chief information officer and business-to-business officer at Cincinnati, Ohio-based Procter & Gamble, has cited figures suggesting that 75 percent of the time, out-of-stocks result in no sale.)