Retailers are embracing artificial intelligence (AI) technology to not only navigate today’s supply chain volatility, but also to build a competitive advantage going forward. In fact, the global retail industry is expected to spend $11.8 billion on AI in 2021, outpacing the banking industry ($11.7 billion), according to research from IDC.
The factors contributing to retail supply chain volatility include rapidly changing consumer item and channel preferences, global sourcing risks, logistic disruptions and the continuing shift to omnichannel fulfillment. Additionally, retailers are experiencing near-term network flow volatility due to promotion calendars, holidays, weather impacts, store re-sets, supply disruptions and large assortment updates.
Improving on-shelf availability is a constant struggle, and believe it or not, capacity planning is still often managed with manual spreadsheet-driven processes. AI technology is alleviating some of the planning pain points such as forecasting logistics demand and making recommendations on how to flex labor and transportation capacity.
For many retail planners, flow planning at various levels of granularity is becoming the best practice to align various fulfillment capacities with volatile demand patterns across categories and regions. To align capacity with demand, retailers are using flow plans that forecast at 90-day, 21-day and daily intervals. Here’s an example of how this type of flow pattern can be incorporated into retailers’ demand forecasting process.
90-day flow plan
It can be challenging for retailers to move goods efficiently while also evaluating the impact of volatile demand on staffing needs or flex transportation capacities. A logistics forecast is critical and can be created by applying machine learning algorithms—enriched with drivers such as future events at stores—to prior year data to create a more accurate forecast. Scenario planning at the 90-day mark can also shape plans for distribution center (DC) labor, store receiving labor, DC storage capacity (ambient, cold, frozen), outbound truck capacity and store backroom space.
21-day flow plan
About three weeks out, when real demand comes in as orders at the item-store level, the planning teams need to understand if they are properly staffed and have available dock doors, labor and material handling capacity to meet the demand. A weekly plan at the item/store/day granularity can inform tactical capacity and allow planners to make informed decisions when limitations cannot guarantee on-shelf availability of all items. Multiple scenarios are run to understand the cost implications to service demand to best manage costly overtime and flex transportation capacity to ensure margin targets are met. A key input driving this are the demand prioritization rules set up by the merchant teams, which helps smooth the flow of items into the stores and mitigate issues like overstocks that ultimately result in markdowns or obsolescence.
Daily flow plan
Daily planning is also essential because it accounts for factors like near-term capacity restrictions. The day plan is executed based upon confirmed order pick-ups at the store. Orders may be blocked based on capacity limitations at the DC, transportation lanes or stores. This daily flow prioritization prevents backlogs from building up and causing havoc in subsequent days.
Flow planning can deliver ongoing efficiencies in retail fulfillment
In conclusion, retailers must have a systematic process to address challenges due to network flow volatility that cause bottlenecks due to availability of storage capacity, labor and transportation. Logistics teams are challenged with moving goods at the lowest total delivered costs while also being responsive to merchandising requirements. Flow planning at mid-term, short-term and daily intervals allow retail logistics and planning teams to optimally prepare DC labor and storage, inbound/outbound transportation and store-level receiving labor. But, the biggest benefit of a 90-21-daily planning interval is to retailers’ bottom lines through lower transportation costs, lower labor costs and fewer in-store out-of-stocks.
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