Four Must-Do Supply Chain Boosters

By John Roach, Editor, Retail Solutions Online

Struggling under the extreme weight of an historic recession and tight-fisted, discount-shopping consumers, retailers are closely scrutinizing all aspects of their operations, particularly the supply chain. And with good reason: In 2008, an estimated 148,000 retail stores closed — the most since 2001 — and the International Council of Shopping Centers estimates that another 73,100 will shut down during the first six months of 2009.

So where can you turn for supply chain help in such desperate times? Try looking to the people who are suffering alongside you: your suppliers. When major chains such as Circuit City, Linens ‘N Things, and Mervyn's close their doors, suppliers feel the pain as well.

"Collaboration is the most critical issue in succeeding with customers," said Jeffrey Edelman, a Wall Street analyst for 40 years, at a Vendor Compliance Federation summit ("The State of Retail: A Financial Perspective"). "Retailers and vendors need to establish best practices and build a close relationship."

Economic hardships have opened the door to genuine supply chain collaboration, uniting retailers and suppliers in a joint struggle for survival in the down economy. Here are four actions you can take at different points of the supply chain cycle to leverage your suppliers' knowledge, improve your supply chain efficiency, and overcome the current economic challenges.

1. Share your POS data.

If you're not already sharing your POS customer data with your suppliers, it's time to start. Doing so can help you improve merchandise distribution and sell-through, generate significant added revenue opportunities, cut costs, and generally run a more efficient retail operation. (Click here for a story I recently wrote on this topic.) And emerging POS software and hardware technologies are making it easier than ever to create an effective link between you and your suppliers.

"The age of collaboration is clearly here," Jim Nadler, VP of marketing and development at afterBOT (a supplier of collaborative commerce solutions) told me. "All of the enabling technologies are here to drive execution at the store level. Retailers have to change the way they interact with both their customers and suppliers." (Nadler recently wrote a guest column for Retail Solutions Online on this subject. You can read the column here.)

2. Partner on data analysis and forecasting.

In general, suppliers are better than retailers at recognizing national trends, while retailers excel at category and assortment planning, according to a Retail Systems Research (RSR) report ("Retail Supply Chain Collaboration: Moving Beyond Coercion," November 2008). Each of you brings a different perspective on consumer behavior and promotion effectiveness to the table — by sharing them, you get a more complete picture of your mutual customers.

Data sharing and joint analysis invariably leads to more effective demand forecasting. "Typically, forecasting looks a week, a month, or a season out, but we're complementing forecasting systems by responding to real-time demand signals that we receive from point-of-sales systems," RedPrairie retail supply chain specialist Janine Renella told me. (RedPrairie's consumer-driven optimization solutions help retailers improve merchandise replenishment and other process.) "That allows our customers to tweak their forecasts or to create additional replenishments to the store based on what customers are buying."

Better analysis and forecasting will help you drive store traffic, lower costs (by avoiding the purchase of unwanted merchandise), and lead to a better product mix and fewer out-of-stocks. The heightened communication will also help align your diverse supplier base with your strategic objectives.

3. Plan for a markdown pricing strategy.

Panicked pricing, especially during the 2008 holiday season, has trained consumers to wait for deep discounts rather than pay full price. A smarter approach to pricing: Plan in advance for the possibility of markdowns and incorporate your suppliers into the effort.

Coordinated, advance planning of possible markdowns can help to combat overstocks, according to the RSR report. Suppliers' "need to improve the flow through their pipelines can be tied to retailers' desire to handle smaller shipment quantities (ultimately in a continuous replenishment arrangement, especially for fast-moving consumer goods)," the report notes.

The collaborative approach will also help you and your suppliers more closely understand how much product will move at what price point. As a result, you'll increase revenues through an optimized flow of goods. "The retailers who are making money right now took a lot of excess inventory out of their stores some time ago," directFOCUS Solutions in-store technology consultant Bill Doran told me. "They were only capable of doing that because they had good visibility of what was selling and they could rely on that data."

4. Evaluate your programs using post-sale customer research.

You and your suppliers can use the latest customer research technologies, including online incentive surveys and data-crunching software (as well as your POS data), to assess the effectiveness of your collaborative efforts. Jointly review the results before you plan your next steps.

Once you've undertaken the actions to enhance retailer-supplier collaboration, don't simply wait for the sales to roll in. Measure the success of your activities frequently. "Don't wait until the end of the quarter to see how profitable your program was," said Edelman. "Assess the results on a regular basis and be ready to react quickly to any deviation in the plan."

This continuous cycle of collaboration with your suppliers will strengthen your analysis and forecasting, ultimately boosting revenues and lowering costs throughout your supply chain. And that's a win-win you and your suppliers can both enjoy.

Have a comment about this article? Let me know. Visit our blog or contact me at jroach@vertmarkets.com.