Over the past two months, I have written columns in this space arguing that we may be at an important inflection point in the history of the retail supply chain.
Specifically, this has to do with various signs - including new changes at both Walmart and Target with regard to fill rates and on-time deliveries - that some retailers may be getting serious about reducing supply chain variability from the vendor side, in much the same way many manufacturers have been attempting to do for a long time.
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So while Target, Walmart and maybe other retailers should be complimented for attacking part of the variability challenge, the other side of the equation also requires attention.
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For example, this past summer, Target's COO John Mulligan said the chain was going to attack the out-of-stock problem in large part by reducing "variability" in its distribution centers, especially with regard to supplier deliveries.
Mulligan 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."
That progress includes an impressive 50% reduction in out-of-stocks for ecommerce-only items in its DCs.
A bit earlier, rival Walmart wrote in a blog post for vendors that 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.
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In addition, the fill rate requirement is being raised from 90% to 95%, measured at the case fill level. Failure to hit either metric results in chargebacks - a practice that Walmart was actually very late to embrace versus other retailers.
That's all well and good, and definitely an important step towards supply chain progress. While taking the steps outlined will help, retailers also create much of their own supply chain variability.
It starts with the famous Bullwhip Effect, first identified by MIT's Jay Forrester in the early 1960s, and then rediscovered in the early 1990s by Procter & Gamble and Dr. Hau Lee of Stanford. In great simplicity, the Bullwhip Effect refers to the fact the while actual consumer demand is generally fairly steady and predictable, for a variety of reasons (including simply a lack of supply chain discipline), orders to first tier suppliers and then their suppliers tend to be erratic and hard to predict.
This of course presents those suppliers with real supply chain challenges. They could bulk up on inventories to buffet the order variability, but that is expensive. Retail vendors do some of that, but more often try to cope by madly shifting production schedules around and expediting - which only goes so far. The result (surprise!): problems with on-time deliveries and fill rates, meaning high levels of variability from the retailer's perspective.
But not only are the actual orders from retailers to vendors erratic - they in general do a very poor job even of forecasting those orders, though there is really no reason they could not do a much better job of that.
This lack of visibility to future order flow is what spawned the Collaborative Planning, Forecasting and Replenishment (CPFR) "standard" (that's an overstatement) in the last 1990s. I suppose CPFR has produced some benefits, but clearly it never met early expectations - or much solved the variability problem in the consumer goods to retail supply chain.
So while Target, Walmart and maybe other retailers should be complimented for attacking part of the variability challenge, the other side of the equation also requires attention.
That means driving the supply plans truly from the shelf back by both parties, providing time-phased order plans such are commonplace in manufacturing but very rare at retailers (evolving into the concept of "supplier schedules"), and providing retail vendors the type of forecast visibility that Canadian Tire has admirably been doing for years for its retail suppliers.
More on all that sometime in early 2017.
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