The Traditional Supply Chain Approach

In the traditional approach, members of the supply chain maintain their own company-specific forecasting and replenishment systems. Retail store managers, internal buyers and planners at the store level ("replenishment planners"), use their own proprietary forecasting and replenishment processes to forecast consumer demand and to plan and purchase supply. These processes typically incorporate calculations, historical point-of purchase data, DC withdrawals, safety stocking parameters, as well as the replenishment planner's personal industry experience and market knowledge.

When the buyers requirements are communicated to the Distribution Centres (DC's), usually through a hard purchase order, in isolation, the DC's activate their own replenishment strategy, to support projected shipments and maintain stock levels. In most cases, future arrivals of stock are planned to arrive "just in time" to cover projected shipments and maintain safety stock needs in any given week. Often, the DC's replenishment system is completely different from that used by the retail store and the only information shared by the store is "the next order."

Utilizing their own proprietary replenishment system, the manufacturer then determines production and raw materials requirements by tallying requests for product from all sources. When raw materials are required, it is likely yet another replenishment system will be used.

Rather than being enhanced, most supply chains are weighted down by numerous independent replenishment systems that add little or no value to the consumer. Each supply chain partner transfers the costs of maintaining their own proprietary systems to the next partner in the chain. Therefore, the production and distribution costs, and eventually the price to the consumer, continue to rise - the customer receives no additional benefit as a result of these extra costs.

Perhaps more importantly, none of these independent systems do anything to allay the negative impact of stock-outs.  Even when trading partners are willing to share information, the differences in categorizing and collecting data often results in increased confusion.

R-e-tailing is Retailing!

Thanks to the Internet, catalogue shopping has re-emerged as a viable retail model using e-commerce. When the customers key in orders and shipping instructions directly into the transaction system, ordering costs associated with catalogue offerings decline significantly.
On-line orders are simply another form of point-of-purchase demand. There are two principle differences, namely, how a company captures consumer demand information and how they plan to satisfy the demand.

Regardless of where the consumer demand information originates (e.g. a barcode scanner in the store or from a web-based customer order form), Internet retailers face the same challenges as traditional retailers - getting product into consumers' hands consistently and at the lowest delivered cost.

Time-Phased Planning Systems for "Bricks" and "Clicks" Retailers

Time-phased planning systems are becoming the norm in manufacturing and distribution. A natural outgrowth of these systems is a time-phased planning system at the physical or cyber store level.
Until recently, the large number of items to be processed at a retail store level (usually in the tens of thousands) rendered this option prohibitive. However, recent advances in computational power have now made time-phased store level and integrated retail planning possible and affordable. Statistics are now available that confirm impressive improvements at the store level.


Communication, Collaboration & Partnership

There is virtually no limit to what can be done with time-phased information. The benefits of supply chain-wide time phased planning are summarized below:

Improved Visibility

The approach ensures partners in the retail supply chain provide a continuous stream of future product needs to their supplier. These plans are updated throughout the supply chain based on the latest information at the cash register and in the marketplace and become the demand forecast that drives operational activities for that supply chain partner.

Continuous Re-calibration
 
Since the only unknown in the supply chain is consumer demand, this is the only place in the entire supply chain where forecasting activity is required. Once the forecasting is done, dependent demand information is shared throughout the entire supply chain. The behavior of all other partners is automatically and continuously re-calculated based on the latest information in the market.

Integrated Planning

As a result of sharing actionable information, the entire supply chain's response to changes in true (consumer) demand is automatic and immediate. Point-of-purchase information is not relevant to a manufacturer (for replenishment planning) unless they also take into account the on-hand inventory at the stores and DC's, customer ordering policies, etc. By continuously providing suppliers with projections of orders ("how much must be supplied and when"), it is not necessary to make risky (and potentially costly) assumptions.

Realistic Order Lead-times
 
Realistic ordering lead-times can be established with the system. Suppliers are not surprised by the next order. Estimates of requirements for the next several months, updated every week (or every day, or in real time - whatever is required) are communicated. Lead-times no longer require a buffer. Uncertainty is virtually eliminated with integrated information.

Proactive Replenishment Planning
 
Total supply chain visibility also gives replenishment planners at all levels (store managers, buyers, production schedulers) the opportunity to resolve potential problems in advance. With demand, supply and inventory levels projected into the future, potential stock outs can be easily detected and early shipments requested before the inventory drops to zero.

Proactive Capacity & Financial Planning
 
A future-looking replenishment system provides valuable planning information to everyone. Supply chain partners utilize their demand forecast/supply schedules to satisfy demand, item by item. In turn, the unit demand forecasts and supply schedules can be easily converted to cubic feet and summarized by facility to do rough cut capacity planning, establish labour requirements and organize inbound/outbound planning.
Similarly, using pricing and cost data by item, the financial team at each supply chain partner can plan cash flow and analyze margins into the future. The replenishment system quickly becomes the source of all projections and a single set of numbers drives all supply chain activities.

Conclusion

As links between supply chain partners become more transparent, the process can be exactly tailored to consumers' specific needs. Planning information is completely relevant and continuously updated. The result? Improvements in customer service, order fulfillment times and cost reduction (particularly inventories) throughout the supply chain. And that spells good news for consumers and business!