Last month, I wrote a column saying that we may be at an important inflection point in the history of the retail supply chain.
The retail sector frankly has been willing to accept a level of supply chain variability simply unheard of in the manufacturing sector, variability relative to lead times, fill rates and vendor shipment details (labeling, ASN accuracy, etc.).
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Target COO John Mulligan recently said that "An unacceptable number of vendor shipments were received by our DCs either too early or too late/"
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But the times may be changing.
Some may say that it is simply inevitable that variability will be high given the thousands of vendors a retailer may have, from huge to mom and pops. Others may note that soft goods, with all the variables (style, color, size), present some special challenges, and they are right there to an extent.
And no question, retailers have caused much of their own supplier variability by "Bullwhip type" order patterns. Finally, over the years, there has in fact been some tightening in the fill rate and on-time requirements.
However, I also think it is very fair to say that there simply has not been a "reduce supply variability" mindset on the part of the majority of retailers. It has simply been the way it's been for a long time. And most retailers have consoled themselves with the "chargeback" to vendors - fines for missing fill rates or late deliveries or bad ASNs - as a substitute of sorts for reducing variability.
The reality is few retailers actually measure variability, even if they do give vendors a grade on things like on-time.
But is the status quo changing?
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A major regional grocery chain has about finished rolling out a highly integrated store-level planning system - among the most comprehensive that has been deployed by any retailer to date. Now that it has leaned out its own store-level inventory and replenishment planning approach, where is the inventory risk? "Vendor failure," it says.
Now when a vendor shipment is late or the fill rate is less than 100%, the chance of an out-of-stock rises versus the previous approach, which had a lot more buffers - and the grocer is deploying a vendor compliance program not common in the grocery sector to reduce that potential vendor variability.
That's a good start.
More consequentially, Walmart and Target, two of the heaviest retail hitters we have, now seem focused on reducing supply chain variability.
The Wall Street Journal recently reported that "Target is taking aim at "stock-outs," those dreaded moments when a toy, clothing or electronics that a customer wants isn't on the shelf, by tightening its inbound distribution schedule. Reducing "variability" in its distribution centers, especially when scheduling deliveries, is a key step toward reducing stock-outs, company executives recently told Wall Street analysts."
Target COO John Mulligan recently said that "An unacceptable number of vendor shipments were received by our DCs either too early or too late,", adding that "We have been collaborating with our vendors to increase the percent of shipments that arrive on the correct date and we have already seen meaningful progress."
Mulligan added that that the percent of shipments that arrive on time has more than doubled and that Target expects to see additional improvement as it rolls out new processes to additional vendors over time.
By the way, the on-time improvement has enabled Target to reduce out of stocks in its ecommerce business by more than 50% in the past six months or so.
Meanwhile, in a recent blog post for vendors, Walmart said it was reducing the window for which a shipment is considered on time from the current four days to just two, starting in February 2017.
In addition, the fill rate requirement is being raised from 90% to 95%, measured at the case fill level.
So, the times really may be changing. Obviously, there are major vendor compliance issues here. But equally, there are also issues retailers must address in terms of visibility and order patterns.
We’ll discuss that in the last part of this column series next month.
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