Supply Chain Transformation Starts at the Shelf

Managing products across multiple channels and the entire product lifecycle is essential to maintaining profitability and competitiveness. And doing so is even more mandatory today as consumers are armed with an unprecedented amount of real-time information on product choices, price and promotional offerings and availability across all channels.

But while consumer packaged goods manufacturers and retailers realize the need to meet consumer expectations at the point of influence and purchase, manufacturers have typically based their demand planning processes solely from a view of shipments out of their distribution centers rather than an order forecast driven from actual consumer demand in the store.

With improved technologies in the e-commerce channel, supplier and retailer trading partners realize the need to effectively collaborate at the shelf level not only for optimal supply chain alignment for current and future product orders but to also increase their competitive advantage and enhance profitability.

Don’t let the data stop you

Retailers are increasingly leveraging shopper-level data and shifting from regional assortments and shelf sets to more consumer-driven offerings. They are migrating from disconnected distribution center (DC) and store replenishment programs in favor of multi-echelon, time-phased plans that leverage point-of-sale (POS) data.

These shifts are driving a new level of information available to suppliers and enhanced trading partner collaboration opportunities that can drive upstream supply chain requirements and produce time-phased order projections driven from the store shelf signal. As a result, significant disconnects between true demand and available supply can occur.

And while most suppliers agree that driving a plan from shelf sell-through to the consumer is more effective than basing the plan on shipment order information, doing so involves a tremendous amount of data to navigate and analyze. And the challenge to translate that data into executable information remains.

Obstacles such as reconciling product definitions with retail trading partners and aligning customer hierarchies arise. Technology systems’ inability to scale properly has also historically presented a barrier to entry. Supply chain planning groups face constraints in their ability to aggregate, analyze, collect and manage their company’s supply chain solutions based on consumer sales—both from a tactical perspective and a planner time investment perspective.

Furthermore, much of the data available to manufacturers is not incorporated effectively into their organizations:

  • Cross-functional team data collected from large retailers is not formally integrated into corporate supply chain planning
  • Corporate planners still rely on shipment/order history from their plants as the primary input to consensus demand planning instead of POS data from their largest key retail customers
  • POS is shared but is insufficient in isolation to drive a shift to a demand-driven supply chain

 

While POS data represents the purest form of consumer demand and provides a critical shelf-level planning input, it alone is not sufficient to optimally plan the supply chain. It doesn’t provide visibility into such factors as future promotions, supply chain and replenishment strategies, retailer assortment changes or resets and other factors.

For optimal results with their retail partners, suppliers must be able to model the impact of these areas in an efficient manner to move beyond today’s “within the four walls” view to one that spans the end-to-end, cross-enterprise and shelf-connected supply chain.

What defines a shelf-connected supply chain?

In the shelf-connected supply chain, manufacturers collaborate with their distribution and retail customers to plan an optimal product assortment and planogram for each store. They then develop and synchronize their demand and inventory replenishment plans driven by consumer sales. This framework integrates a manufacturer’s planning and execution processes and systems to better align the enterprise with consumer demand.

The shelf-connected supply chain centers on the strategic relationships between the largest manufacturers and the key critical-mass retail partners that can drive differences in their deployment and manufacturing strategies. Trading partners engage in store-level collaboration on shelf-driven, time-phased order plans that translate back up through the entire supply chain.

Suppliers collaborate to create a time-phased order plan on behalf of the retailer who may not have the capability to do so. Many large retailers today still struggle with developing or completing accurate, bottom up time-phased order plans that are driven from shelf sell-through.

Manufacturers with the capabilities can strategically elevate their partnership levels with retailers, taking the lead on:

  • Conducting shelf-driven forecasting
  • Converting the shelf forecast into an order plan
  • Examining promotional lift based on store-level data
  • Developing optimal promotion and pricing plans
  • Driving the shelf signal to create more granular planograms and assortments

Many manufacturers who are forced to manage their supply chains with their limited shipment-based demand view experience unplanned swings in order patterns resulting from a retailer’s decision to change its strategies in the areas of service level and safety-stock settings, lead times, transportation modes, store network sourcing and order parameters.

Collaborating around replenishment policies and store-level forecasts enable both the supplier and retailer to better manage the flow of merchandise to profitably serve the consumer.

Leverage the cloud and synchronize your supply chain

By incorporating shelf-connected supply chain practices, trading partners become aligned not only on the next order but also on a longer horizon of planned orders. The insights associated with understanding the strategies driving the time-phased planned orders are leveraged by both supplier and retailer in a mutually beneficial shelf-connected model. As shelf-connected programs become more sophisticated, the partners move toward collaborating on sales and order forecast outputs; and on modeling distinct strategies that drive differences in those plans. This provides an accurate and scalable platform for collaborative partners to synchronize their supply chains, driving out costs and improving cycle times to respond to the hyper-informed and demanding consumer.

The ability to scale is a key enabler and prerequisite to being able to effectively engage the shelf-connected supply chain model, and manufacturers managing sell-through at the shelf must be equipped to handle the associated exponential increase in planning intersections.

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