News and Views
 

- May 15, 2008 -

 

European Retailers and Demand-Driven Supply Chain

 
  BrainTrust Panel Discussion Question: Why are European retailers closer than U.S. retailers to achieving the optimal demand-driven supply chain?  
 

 

This content from RetailWire is made possible through a partnership between RetailWire and Supply Chain Digest to share content relevant to each other's readers.

Each business morning on RetailWire.com, retailing execs get plugged in to the latest industry news and issues with key insights from a "BrainTrust" of retail industry experts. Here are excerpts from one of these unique RetailWire online Discussions, along with results from RetailWire.com's Instant Polls.

 
       
 
 
     
 

By Kevin Stadler, Vice President of Sales and Marketing, SAF USA, Inc.

U.S. retailers, currently dealing with a stagnant economy and pressure from more European retailers entering the domestic market, are reassessing what it takes to gain and sustain a competitive advantage in the industry.

The main goal of the retail supply chain has always been to get the right product to the right place at the right time and in the right amount. Due to limited and costly space, many European retailers have focused on demand-driven, computer-generated ordering processes that they see as bringing them closer to achieving an optimal supply chain. In contrast, the U.S. retail environment appears more focused on the supply chain than on the demand chain.

Global retailers indicate that the transformation to demand-driven replenishment can provide substantial returns. Retailers have reported to SAF USA that they are achieving sales increases of between 0.5 percent and 1.35 percent. Lowering inventory by 30 percent, while reducing out-of-stocks by 60 percent is not uncommon.

The impediment to many new implementations is the prospect of an "all or nothing" plan. Therefore, a new methodology that can take the large journey and break it down into steps is becoming popular. Typically, it involves three phases: 1) Forecast Assisted Ordering; 2) Predictive Inventory Ordering; and 3) Full Computer-Generated Ordering. Each step requires incrementally more information and effort, while providing incremental benefits along the way.

Discussion Question for the BrainTrust panel: Do you agree that European demand-driven supply chain efficiencies are well ahead of their U.S. counterparts? Do you think U.S. retailers will be more apt to take a gradual approach to implement computer generated ordering rather than leaping into an "all or nothing" approach? Do you have other recommendations for U.S. retailers?   

 

RetailWire Instant Poll Results:

RetailWire BrainTrust Comments:

There are also US retailers using this model, moving to this model, and experimenting with this model. They also find good returns. I mean having access to real time data (to identify those last-minute purchases when they are being made), comparing real time data to historical trends (to identify deviations that need to be addressed), and monitoring the real-time data in real time. Relying on consumers, retailers, or distributors to tell you what they think they will sell is inherently flawed.

Camille Schuster, President, Global Collaborations, Inc.

Bill Bittner, President,
BWH Consulting, Says:
I think the premise is wrong here - I don't believe it is retailers who are not demand driven, but rather the manufacturers.

What do you say? Send us your comments here

Demand-based replenishment is a fine thing, but only if the demand signal is reliable and accurate. As far as I can tell, European food retailers are not ahead of North American chains at monitoring and managing shelf conditions.

Excess inventory and out-of-stocks are the twin spawn of inadequate shelf management and lack of shelf visibility. No level of supply chain process sophistication can fix this in the absence of an improved In-Store Implementation discipline that incorporates a plan-do-measure methodology.

James Tenser, Principal, VSN Strategies

I think the premise is wrong here - I don't believe it is retailers who are not demand driven, but rather the manufacturers. It is common knowledge that less than 20 percent (and probably closer to 10 percent) of the items in a supermarket sell less than a case per week. So, the inventory tie-up is the result of case packs built to obtain display space on the shelf and assortment decisions that are merely meant to increase visibility of the manufacturer’s product line.

Why does the retailer put up with this? I think they’re called "slotting fees." Just as Wall Street is learning, hiding the financial factors doesn't make them go away, it merely distorts the execution.

Bill Bittner, President, BWH Consulting

We need to remember that we are looking at different consumer markets. The amount of "impulsive" purchases in Europe is much lower that in the USA (I have lived the first 35 years of my life in Europe), which means that forecasting overseas is somewhat easier. However, through the current economical situation in the USA, I feel that the consumer's mindset is changing. Of course, this will have serious consequences for all parties involved in the supply chain.

Ruud Noordzij, Business Development Manager, ServiceCraft Logistics

America grew up with plenty of space and learned to "stack it high and watch it fly," which is very supply driven.

The best Demand Driven retailers I've seen in the US are the American subsidiaries of a European conglomerate. Space, and the execution of space plans, is critical to any Demand Driven network. Europeans retailers tend to understand their space better, and are more successful than the American retailers at delivering CAO and other similar initiatives.

Dan Desmarais, Vice President, Category Management Solutions, JDA Software Group

Read the entire story and RetailWire discussion at:

http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/12900

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