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An Inflection Point in the Retail Supply Chain? Part 3


As Leading Retails Look to Reduce Supplier Variability, Most Need to Look at the Role of their Order Practices as Well

Dec. 13, 2016

Dan Gilmore

Editor

Supply Chain Digest


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.

Supply Chain Digest Says...

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.

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.


Any comment on this article? Enter below.

Your Comments/Feedback

Srihari

Senior Consultant, Infosys
Posted on: May, 22 2016
Great article. I am a little suprised not to see BNSF in the mix while I understand their financial mode/operation is a little different. 

That would only give a complete perspective with all the players in the pool.

Mike O'Brien

Senior editor, Access Intelligence
Posted on: May, 26 2016
Surprised to see Home Depot fall off the list; thought they were winning with Sync?

Julie Leonard

Marketing Director, Inovity
Posted on: Jun, 27 2016
Using the right tool for the right job has always been a best practice and one of the reasons, we feel, that RFID has never taken off in the DC as exponentially as pundits have been forecasting since 2006. While these results may seem surprising to those solely focused on barcode scanning, the adoption of multi-modal technologies in the DC makes perfect sense for greater worker efficiency and productivity.

Carsten Baumann

Strategic Alliance Manager, Schneider Electric
Posted on: Aug, 19 2016

The IoT Platform in this year's (2016) Hype Cycle is on the ascending side, entering the "Peak of Inflated Expectation" area. How does this compare to the IoT positions of the previous years, which have already peaked in 2015? Isn't this contradicting in itself?

Editor's Note: 

You are right, Internet of Things (IoT) was at the top of the Garter new technology hype curve not long ago. As you noted, however, this time the placement was for “IoT Platforms,” a category of software tools from a good number of vendors to manage connectivity, data communications and more with IoT-enabled devices in the field.

So, this is different fro IoT generally, though a company deploying connected things obviously needs some kind of platform – hoe grown or acquired – to manage those functions.

Why IoT generically is not on the curve this year I wondered myself.

 

 

Jo Ann Tudtud-Navalta

Materials Management Manager, Chong Hua Hospital, Cebu City, Philippines
Posted on: Aug, 21 2016

I agree totally with Mr. Schneider.

I have always lived by "put it in writing" all my work life.  I am a firm believer of the many benefits of putting everything in writing and I try to teach it to as many people as I can.

This "putting in writing" can also be used for almost anything else.  Here are some general benefits (only some) of "putting in writing":

1. Everything is better understood between parties involved.  There are lots of people types who need something visual to improve their understanding.
2. Everyone can read to review and correct anything misunderstood.  This will ensure that all parties concerned confirm the details of the agreements as correct.  This is further enhanced by having all parties involved sign off on a hard copy or confirm via reply email.
3. Everything has a proof.  Not to belittle the element of trust among parties involved, it is always safest to have tangible proof of what was agreed on.
4. There will be a document to refer to at any time by any one who needs clarification.
5. The documentation can be useful historical data for any future endeavor.  It provides inputs for better decisions on related situations in the future.
6. This can also be compiled and used to teach future new team members.  "Learn from the past" it is said.

There are many more benefits.  Mr. Schneider is very correct about his call to "put it in writing".





Sandy Montalbano

Consultant, Reshoring Initiative
Posted on: Aug, 24 2016
U.S. companies are reshoring and foreign companies are investing in U.S. locations to be in close proximity to the U.S. market for customer responsiveness, flexibility, quality control, and for the positive branding of "Made in USA".

Reshoring including FDI balanced offshoring in 2015 as it did in 2014. In comparison, in 2000-2007 the U.S. lost net about 200,000 manufacturing jobs per year to offshoring. That is huge progress to celebrate!

The Reshoring Initiative Can Help. In order to help companies decide objectively to reshore manufacturing back to the U.S. or offshore, the nonprofit Reshoring Initiative's free Total Cost of Ownership Estimator can help corporations calculate the real P&L impact of reshoring or offshoring. http://www.reshorenow.org/TCO_Estimator.cfm

Robert

Transportation Manager, N/A
Posted on: Aug, 30 2016
 Good article!  I am sending this to my colleagues who work with me.  We have to keep this in mind.  Thanks!

Ian Jansen

Mr, NHLS
Posted on: Sep, 14 2016
SCM is all about getting the order delivered to the Customer on date/ time requested because happy Customers = Revenue. Using the right tools to do the right job is important and SCM is heavily dependent on sophisticated ERP systems to get right real data info ASP.

I've worked in a DC with more than 400,000 line items and measured the Productivity of Pickers by how many "picks" per day.

I've learned that one doesn't have to remind Germany about your EDI orders.

Don Benson

Partner, Warehouse Coach
Posted on: Sep, 15 2016
Challenge - to build and sustain effective relationships at the level of the organizations that are responsible for effectively coordinating and colaborating in an otherwise highly competitive environment 

Jade

Admin, Fulfillment Logistics UK Ltd
Posted on: Oct, 02 2016
Of course we all need to up our game. We need to move with the times, and always be one step ahead of what the future will bring.

Mike Dargis

President of asset-based carrier based in the Midwest, Zip Xpress Inc. (at ZipXpress.net)
Posted on: Oct, 03 2016
Thanks for the article, but I know there's a lot more to this issue than just the pay rates. Please check out my blogs on the subject at www.zipxpress.net.

Blaine

Inventory Specialist, Syncron
Posted on: Nov, 16 2016
Lora, great article! I agree that companies choose the 'safe' solution more often than not. My solution is a bolt-on for legacy ERP's and we even face challeneges of customer adoption. Most like to play it safe and choose an ERP upgrade, which is more costly, time consuming, and has lower ROI across the board. Would love to learn more about your company, we are always looking for partnerships.

Blaine
blaine.schultz@syncron.com

Bob McIntyre

National Account Executive, DBK Concepts LLC
Posted on: Nov, 21 2016
This is a game changer in GE's production and prototyping.  It also has huge implications across the GE global supply chain with regard to the management of their support and spare parts network. 
 
 
 
 
 

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