What’s in store for supply chain and retail management professionals in the decade ahead? Prediction is very difficult, yet it is certain that the retail industry will continue to be among the most challenging and competitive sectors. This complexity should cause retailers to rethink how they manage the impact of these challenges on their supply chain.
Over the next decade, information-driven collaborative supply chains will form the core of retailers’ business models. Today, most supply chains are built on inventory. Inventory reserves are quite common to ensure that risks are balanced with just-in-case demand requirements. Companies have built-in safety stocks to adjust for inconsistent supply sources, which instills a level of constant ‘buy-more’ trade off to make up for those suppliers who can’t ship on time.
To meet these challenges, the retail industry is beginning to look at the supply chain as a strategic opportunity within a broader company strategy. Retailers who have made the paradigm shift to information-driven supply chains have the visibility to sense, predict and plan demand at granular levels and in real-time.
In a 2006 report from the Economist Intelligence Unit, CEOs’ top five priorities focused on driving operational excellence, streamlining innovation, managing risk and compliance, driving revenue growth and maximising shareholder value. These goals may be more difficult to achieve than others, but in retail, when you mix competitive environment, uncertainty in global markets, thin margins and volatility of consumer spending – it makes the objectives seem impossible to achieve. What we do know is that the supply chain is shifting and the demand side is more demanding than ever. Managing at the speed of reality has become the new norm. Retailers must transform their business to focus on a supply chain built on information, instead of inventory. Inventory turn is a common metric used in retail. The calculation is simple; turn is equal to cost of goods sold divided by inventory. The challenge for retailers is to focus on more productive uses of inventory. Also, with globalisation and global sourcing, retailers must look to optimise supplier networks to decrease supply variability while still delivering on customer expectations of more products on the shelf.
Success will be measured by how well supply chain professionals can use information to improve overall business value. Transformation, in the global landscape, requires retailers to take a fresh look at:
Breaking up the bottlenecks – does your supply chain allow for time-phased changes to planning and orders or allow for a synchronised view of demand signals?
Moving from static to demand sensing and shaping – does your supply chain capture POS information or use levers such as profitability and capacity as decision-drivers?
Rationalisation of supply sources – does your supply chain have the ability to analyse optimised flow strategies based on market conditions and unplanned events or have the ability to rationalise suppliers to minimise risk? Does it have the ability to determine postponement strategies?
The forces of change in the retail supply chain will lead retailers to look at new technologies that can shape and build strategic value for the business. A supply chain built on intelligent information provides a transparent view across all supply chain nodes that will ultimately drive improved value. Infusing science into business intelligence through a unified predictive platform, on a single forecasting engine will drive better allocations. This will also improve merchandising sell-through rates. Integrated and aligned planning will improve overall strategic planning and execution. Finally, this improved approach leads to a better use of inventory owned, leading to maximising gross margin.
It is not uncommon for retailers to experience double-digit improvements in inventory, while sustaining and improving service levels. For retailers looking to manage the speed of retailing, advanced inventory planning solutions are too compelling to ignore.
Sarah Taylor, senior industry director, EMEA, Oracle Retail.