Doug Percy is president and CEO of Blue Agave Software. The company is based in Cambridge, Mass. and can be reached at www.blueagavesoft.com.
Major retailers are feeling the pain of the competition they've created, and as a result, are becoming more demanding of suppliers as the key to their own survival. 'Perfect' orders, delivery and shelving will be the new norm within 36 months, and woe to the manufacturer who doesn't get it right.
Today, many of the tens of thousands of companies selling to Target, Wal-Mart and other top-tier retailers are still struggling to comply with the last bout of demands, including 100% fill rates, RFID deadlines, and the constant pressure to cut prices. The forward-guard among the retailers is pushing select suppliers to take on yet another responsibility: managing replenishment at every single store. Keeping the supply chain flowing at dozens of distribution centers is no longer enough; suppliers participating in these "Two Tier" programs must also manage inventory at thousands of store locations.
Flying Blind?
The next wave of innovation will occur at the shelf. It's where the 'perfect order' converges with the retailer's domain: an order delivered that is completely accurate, on time and in perfect condition. The shelf, then, can also be perfect -- with the right amount of inventory, whether it's Sunday morning at 7 a.m., or Friday night at 5 p.m. Because replenishment is seamlessly adjusted based on sales, manufacturers and retailers can dramatically reduce buffer inventory, freeing up dollars and limiting excess down the line.
Surprisingly, this level of perfection is tantalizingly close. In fact, the crucial underlying data is captured by the minute by retailers' point-of-sale (POS) systems. In theory, many retailers can make this data immediately available to suppliers, so the manufacturers can shift production and distribution, to meet unexpected peaks and drops in demand. The challenge for manufacturers: figuring out how to effectively leverage this tremendous amount of data to do more than just retrospective analysis and reporting. By utilizing this valuable data source to drive real-time decisions within critical windows of opportunity, manufacturers can more consistently achieve shelf perfection.
Perfection In Real-Time
Manufacturers will face even greater pressure from retailers in the coming months; effectively leveraging the four crucial human planning elements of the supply chain will result in enormous competitive advantage. These include:
- Real-Time Data
CPG manufacturers are often groping in the dark, working through ERP systems, last week's sales reports and last year's forecasts to predict what will happen in the next five selling days. But how safe is it to dispatch delivery trucks based on history, when market trends shift so quickly -- and the price for bare shelves is so severe?
Despite great strides, forecasting is still largely unreliable -- especially at the store/SKU level. Manufacturers consistently admit that the majority of their weekly store-level forecasts are off by 25 percent or more; some are off by as much as 75 percent. With these forecasts driving automatic replenishment systems, manufacturers can find themselves both losing sales and building up severe excess inventory. The most effective remedy available today is to exploit retailer POS data as soon as it's available -- ideally, in time to make daily replenishment adjustments. - Visibility
What's it worth to have a virtual 'eye' on the entire supply network -- including the shelf? After all, this is the main point of contact with customers. Knowing how much product is in stock at the distribution center level is useful. But knowing exactly which stores have only one item left on the shelves is even more valuable, especially when each shelf can hold 20 items, and are in stores with high sales volumes.
Software solutions are available today that can provide this up-to-the minute, store-level insight, creating a virtually 'perfect shelf' that always has the right inventory in place. Industry leaders exploit this new visibility to improve new product introductions and drive more effective promotions, by consistently keeping high-priority shelves in-stock during critical periods. - Alerts and Recommendations
When product is moving more quickly than projected, it could be money in the bank, especially if organizations can capitalize on the increased demand. However, issues and opportunities are often buried in the tremendous sea of POS data manufacturers receive daily -- and decision makers can spend hours manually searching through spreadsheets and reports to uncover these "needles in a haystack."
With an exception management system that continuously monitors daily POS data and correlates it with relevant information from internal systems, planners and product managers automatically receive advanced warning when reality doesn't meet planned expectations. Intelligent systems can even recommend several options by which decision-makers can respond. These systems free workers from the drudgery of hunting down problems and logging into multiple systems to figure out solutions -- enabling them to focus all of their energy on actions that improve revenue and performance. - Flexibility
Even the smoothest supply chain experiences aberrations. How you monitor for and respond to these aberrations makes all the difference. Re-routing products is one sign of a flexible system. Adjusting production plans is another. But it's also important to have the contextual insight necessary to understand the full impact of the actions you take; re-routing goods to different stores, or even retailers, may put other stores at risk or even result in unexpected penalties; a simple change in a production schedule could put downstream orders at risk.
Recently a major CPG manufacturer prevented more than $1 million in lost revenue with a single retailer in just six months, by identifying orders-at-risk early enough for teams to take action to prevent interruption at the shelf. By automatically correlating information across supply, demand and inventory, the manufacturer was able to proactively identify downstream service problems caused by changes in internal business conditions, such as shifts in manufacturing schedules, expected purchase receipts, and demand dips and spikes.
Having a system that has the capacity to quickly process many diverse options, and highlight hidden issues, is essential.
'The Perfect Order' and 'The Perfect Shelf' are the next best practices that will shape performance standards. It's a very pragmatic approach to solving vexing business challenges. Manufacturers who lead this shift will make it much easier to exploit the biggest benefits major retailers provide: immense volume and reach. Achieving this level of perfection also will drive profits, through a combination of avoiding stiff penalties from retailers, and capturing every possible sales opportunity.
Doug Percy is president and CEO of Blue Agave Software. The company is based in Cambridge, Mass. and can be reached at www.blueagavesoft.com.
