Retailers can prepare their supply chain to react intuitively to customers and deliver the right amount of product on time, with minimal cost. Here's how.
Remember the mass hysteria over holiday crazes in years past? Shoppers braved the parking lots and the crowded malls, or spent hours online, all to find a store that still had Play Station 2, Tickle Me Elmo or Furby in its inventory.
The holidays can certainly be a stressful time of year for shoppers, but shoppers aren't the only ones dealing with anxiety during this yuletide season. Few work harder and are more conscious of holiday pressures than retailers who work intensely throughout the months leading up to year's end to ensure that the holidays will be profitable and worry-free with exactly the right amount of products in stock to meet customer demand.
But is the holy grail of supply perfectly meeting customer demand more of a fantasy that will go no further than a retailer's holiday wish list? Just how can a retailer anticipate what this year's craze will be and how to stock its shelves with enough product to satisfy demand, but not too much that it will incur the costs associated with overstocking products that may be undesirable in a matter of weeks?
The key to reaching this retail nirvana can be summed up in four words: an efficient supply chain.
A supply chain that is truly efficient is one that is consumer-driven, meaning that it intuitively expands and contracts, accurately anticipating what consumers want and reacting accordingly if supply dips below a certain level or products aren't selling quite as well as expected. When market conditions change, suppliers are instantly notified to increase or reduce shipments to achieve an exact balance of supply and demand.
By achieving this exact balance, retailers are empowered to unlock tremendous cost savings. These cost savings, in the form of reduced operational, labor and shipping costs, enable retailers to offer products at lower prices than their competitors, leading to greater customer satisfaction and profitability.
In 2003, Aberdeen Research conducted a survey of supply chain professionals to gain an understanding of how executives in companies across a range of industries saw the importance of supply chain planning. The analyst firm reported that 28 percent of enterprises currently conduct supply chain planning on a limited scope, and another 22 percent magazine their plans on a division or business unit basis. Additionally, fully 88 percent of respondents said they use spreadsheets for planning.
Mark Vigoroso, senior research analyst, supply chain management at Aberdeen, wrote in the corresponding report that the collaborative aspect of planning provides critical benefits to an enterprise. Foremost among these is the ability for trading partners to gain greater visibility into supply, capacity and constraints when planning their supply chain efforts, he said. Collaborative planning enables trading partners to reduce costs by keeping inventories and production in line with demand. Perhaps most important (in the current economy), it can actually enhance revenue generation by reducing stock-outs during points of peak demand, such as during promotions.
Most retailers recognize the benefits of a streamlined dynamic supply chain, but the question they're faced with is how to begin such a daunting task as overhauling their existing supply chains.
The first step to building an efficient supply chain is to fully understand the processes currently in place. All too often, an organization's supply chain is disjointed, with individual departments taking different approaches instead of adhering to a standardized, company-wide process. For example, the merchandiser may know her department's purchases, and the warehouse manager may know his inventory, but the two can't always communicate or react in a timely manner.
The most effective way to gain an understanding of a company's supply chain is to break it down piece by piece and model all of the current processes in a visual format. Once the process is modeled out it becomes apparent where the problematic areas are, and steps can then be taken to address each area, whether that be in fulfillment, a lack of flexibility with suppliers or any number of other issues.
One example of the benefits of modeling a company's processes can be illustrated in the case of a large retailer with executives who couldn't understand why the company's supply chain wasn't operating efficiently, and why the company was hemorrhaging money as a result.
In modeling the system, an immediate red flag was raised in the area of item data. It turned out that the company was spending weeks getting data on products that had already arrived in the warehouse. Characteristics such as pricing information, promotional data and where in the store to place a product should always accompany the product as it proceeds through the supply chain.
In this case, the item data was significantly delayed, meaning the product sat in the warehouse until the necessary information arrived. The executives then began working with a solution provider to analyze the models and implement a product information management system that now serves as a global repository for all of this data, ensuring that as soon as products arrive they can be moved to the front of the store.
As in the example above, once problems are identified through modeling the supply chain, retailers must embrace technology to increase their levels of efficiency.
What retailers are finding is that embracing software solutions tailored for the retail industry is particularly beneficial because the solutions address challenges specific to their needs.
Solutions tailored for the retail industry include forecasting software used as far in advance as a year prior to the holidays to determine what products may fly off the shelves. Also included is middleware that enables retailers to better integrate with trading partners, better manage store inventory and store performance, track shipments with wireless radio frequency identification (RFID) technology, support multiple sales and fulfillment channels, and streamline store operations procedures.
Combined, these solutions help retail organizations streamline their supply chains and ensure that when the holiday shopping season comes around they will be operating at peak efficiency. And with shelves stocked just right and product information readily available, retailers can have the perfect balance of this year's gotta-have products to meet customer demand.
At the end of the day, while retailers can't always predict the next big craze, they can prepare their supply chain to react intuitively to the craze and deliver the right amount of products on time, with minimal cost. This reduces holiday stress for the retailers, who can then pass along savings and deliver the requested products in real-time, thus eliminating one element of holiday stress for the shoppers.
About the Author: Pamela Klym is segment manager for the Retail Industry, IBM Software Group. In this role, she is primarily responsible for aligning IBM Software Group's retail strategies with current trends impacting the industry, as well as working closely with retailers to help them achieve a competitive advantage through technology.