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What We Can Learn from the Collision of Supply Chain and Retail

November 18, 2014 • Business Process, OPERATION, Supply Chain, Supply Chain Management

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By Karin L. Bursa

Traditionally, Supply Chain Planning and Retail Planning organisations have operated independently of each other, to the detriment of both. But, Karin L. Bursa argues, change is coming – and not before time. As the Supply Chain Planning process evolves, collaboration between the two sectors will increasingly become key. And they can learn a lot from each other.

Traditionally, Supply Chain Planning and Retail Planning organisations have operated independently of each other – each with their own language and culture. The separation of the two planning organisations has given rise to isolation without collaboration. And, to the detriment of both, best practices have not filtered through the domain barriers.

Retailers are excellent at planning and executing against a short horizon. For the next 2-3 weeks of the plan they know daily and hourly customer behavior and can adjust the plan on the fly.

Supply Chain managers see the short and long-term operations of the company – what is around the corner, how suppliers and partners are performing, where challenges and opportunities may develop. The Retail Planning team on the other hand, sits at the front line of sales, experiencing day-to-day shifts in demand, accumulating massive amounts of point-of-sale data, and spotting trends of what is hot and what is not.

 

Change is Coming

Something new is brewing; the maturation of the Global Demand-Driven Supply Chain Planning process. This evolution is bringing the two domains together and requiring that they sit at the same table, learn each other’s language, and collaborate. Far from being just a “clash of differing dogmas”, there is a lot each side can learn from the other, making this turning point an opportunity to cross-pollinate our best practices.

Savvy supply chain leaders can take advantage of this opportunity (and gain a sharp competitive advantage) by sharing best practices such as:

 

Retail

1. Demand Sensing, Short Horizon Forecasting and use of Point of Sale data to drive the plan.

Retailers are excellent at planning and executing against a short horizon. For the next 2-3 weeks of the plan they know daily and hourly customer behavior and can adjust the plan on the fly.

2. Fashion Forecasting and Product Volatility.

Retail Planners understand how to work with a volatile plan. There are very few “steady state” products in retail. From back-to-school to varied seasons and fashion that is inherently unpredictable at the style/colour/size/stock keeping unit (SKU)/store level, retail planning teams must stay ahead of many challenging variables.

3. High Volume/Daily Allocation and Replenishment.

The retail planning environment is a high volume challenge. Retail planners may have to plan down to a Style/Colour/Size/SKU across hundreds or thousands of store locations on a daily basis. Their support systems must quickly move and utilise millions of discrete transactions to run the business.

Supply Chain Planning has powerful processes and software solutions to create plans that span multiple horizons and aggregation levels.

4. Complex/Flexible Allocation and Replenishment Logic. When it is time to move product from the distribution centres to the stores the Retail Planning team takes advantage of rule-based logic that bakes in domain expertise. For example, send the sweaters to the cool climate stores, send desk fans to the warmer locations, and the hot cocoa to the cold climate stores that have snack kiosks and are open on weekends. In times of shortage the allocation must be managed to take advantage of margin opportunities. It’s a complex game whose goal is to end the season with no extra stock while grabbing as much business as possible.

 

Supply Chain

1. A High Quality Plan.

Supply Chain Planning is focused on a solid, feasible plan. Managers spend their resources making sure the demand, supply and inventory plans are in place across the supply chain to support business goals and objectives. The culture believes “if you get the plan right you can avoid costly reaction changes and expediting downstream”.

2. Multi-Horizon, Multi-Level Constraint-Based Planning. Supply Chain Planning has powerful processes and software solutions to create plans that span multiple horizons and aggregation levels. Individual stake holders can create and use the plans for different purposes while still talking a common business plan.

3. Collaborative Planning across Supply Chain.

The supply chain team has matured over the years to consistently break down functional silos and remove buffers. The extended supply chain plan has grown to encompass the entire ecosystem with suppliers, co-packers and 3rd parties joining in the collaboration. Mature Supply Chain Planning organisations have become very good at weaving the collaboration signals and processes into the plan.

4. Rigorous S&OP Planning Practice with Supply and Demand Matching.

Every Supply Chain Planning organisation is working hard to move up the sales and operations planning (S&OP) maturity curve. They have made great strides. Executives are bought in, processes put in place and across the organisation teams are driving towards a one-number supply-demand-inventory plan that supports the executive business goals. S&OP is quickly becoming the de facto language of well-run supply chains.

The retail culture tends to be more buy-centric and store-driven while the supply chain culture is driven more by supply and demand. These differing views have led to the development of different languages, but their end goal is the same: generate the right plans to create the greatest positive financial impact on the company.

Both groups can meet in the same place, but there has to be a change in mindset. There must be a C-level initiative directing these groups to collaborate closely, share data and develop optimised plans that reach from sourcing to the retail shelf. That’s how to create a competitive advantage, and companies that adopt a new level of collaboration will quickly move to the head of the pack. Is your organisation headed on the right path?

About the Author

karin_bursa_4x4-1 Karin L. Bursa is a vice president at Logility, a provider of collaborative supply chain management solutions. Ms. Bursa has more than 25 years of experience in the development, support and marketing of software solutions to improve and automate enterprise-wide operations. You can follow her industry insights at www.logility.com/blog. For more information, please visit www.logility.com.

 

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