Supply Chain Visibility's Store-Level Impact

Store-level execution improvement is the focus of much IT spending in retail, and for good reason. People who pay attention to such things generally agree that planogram adherence hovers around a dismal 50% industry-wide. Promotion execution is nearly as problematic. Generally, the retail industry loses 30% of its potential promotional sales lift at the hands of poor promotion execution (i.e. late display setup, out-of-stock merchandise). Here's some insight into recent back end supply chain trends and their impact on store-level sales and merchandising execution.

Supplier Diversification Shortens The Chain
Consumer purchasing habits have far-reaching supply chain implications. That's why many retailers are retooling their supply chain strategies to be more reflective of store-level, rather than supply chain activity. "We're seeing a much stronger focus on consumer-centric merchandising, and this is causing retailers to make significant back end supply chain changes," says Ron Kubera, senior VP of supply chain systems at JDA. For example, many retailers in the apparel industry are searching for unprecedented levels of trading partner flexibility in order to meet store- and consumer-level expectations.

There's a historical trend toward doing business with offshore (China, Japan) trading partners, who generally produce goods far less-expensively than domestic and near-shore (Mexico, Canada) suppliers. But offshore trading adds weeks to the supply chain, and consumer-centric retailing requires more agility than ocean liners can provide. That's fueling a bit of frenzy in the retail apparel industry to find near-shore or domestic trading partners, with many retailers searching for the ideal mix of the two to enable the optimal mix of production and fulfillment efficiency. "We had a retailer make the executive decision to offshore most of its merchandise a couple of years ago," recalls Kubera. "This elongated the retailer's supply chain by 21 days, so its inventory carrying costs increased, as did the variability of its supply chain, ultimately affecting its ability to keep shelves stocked in a predictable, forecastable manner." Indeed, smart retailers are thoroughly analyzing supply and demand implications before they make decisions about offshoring based on cost per unit. "The cost-per-unit savings might be minimal in comparison to an increase in transportation and warehousing costs, damages, returns, and lost sales due to empty shelves," says Kubera.

Jim McMurray, senior VP of retail for SAP, acknowledges the trend toward trading partner diversification. "Some of our apparel customers are making their first buy overseas at the lowest cost possible, then turning to near-shore suppliers and asking them for the same product with a quicker turnaround time. For a slightly higher per-unit cost, they're seeing the payoff in turnaround time, which is enabling them to keep shelves stocked and sell more of their merchandise at full retail value." McMurray says the retailer he cites has historically operated on the notion that 70% of merchandise would sell at full value. But the retailer chose to examine the bottom-line impact that might occur if it could raise this percentage, so it's currently analyzing its store-level rate of sale information by size. This analysis gives it a clearer picture of true demand. "The retailer is attempting to make its initial product push, based on demand analysis, from an offshore supplier, then using a near-shore supplier to replenish based on rate of sale," says McMurray. If it reaches an 85% full retail value sell-through, the retailer estimates it could achieve a positive gross margin impact of 2% to 3%.

But replenishment speed forecasting requires a data-intensive relationship with suppliers, says Jim Mattecheck, senior VP and GM for retail at SAP America. "Ideally, this retail-supplier integration happens daily and includes the retailer's forecast information on sales by style and SKU," he says.

Strive To Eliminate Manual Intervention
Sean Feeney, CEO at supply chain intelligence solutions provider Inovis, also sees an increased focus in supply chain diversification among his retail customers. "Our retail customers are increasingly demanding the ability to quickly get new trading partners integrated and compliant. We're also seeing that as they seek out smaller, more specialized suppliers, we have to get those people compliant and automated." Feeney says much of the retail supply chain is still paper-based and manual, a recurring theme among the veterans interviewed for this article. "It's amazing how much supply chains are still moving by fax machine. Our biggest focus right now is just that — improving the transfer of information with trading partners by building direct and networked connections." 

JDA's Kubera says many of the large retailers that think they're automated really aren't. "When you dig in, you see that they're actually rekeying a lot of data manually. They're using Excel to manipulate data, and they're often doing it individually, in departmental silos." Transportation, distribution, and replenishment are among the departments that may take and manipulate data in disparate forms, convoluting a retailer's complete supply chain picture. Kubera says it's difficult to reverse this issue in retail because windows of opportunity to reinstate or renew business processes are few and far between. "Success is most often achieved by retailers that start out small by focusing on a specific manual process and fixing it before moving on to automate the next."

Set Clear Goals And Stay Involved
Steve Poplawski, global industry executive, retail for Sterling Commerce, believes that most retailers carry at least a week's worth of excess inventory in their supply chains, but that this can be alleviated by pulling together all of the disparate silos of internal supply chain data. "You can routinely achieve somewhere between 3% and 12% in inventory reduction by improving supply chain visibility," he says. This requires a commitment to viewing all supply chain systems holistically to paint a complete picture of supply chain business processes. "The impact on the customer can be huge, because supply chain systems improvements should always culminate in a reduction of the lost sale."

It's imperative that retailers integrate internal systems to gain a true picture of their own supply chain realities  prior to seeking integration with supplier partners. Even then, Inovis' Feeney agrees that granular data integration between retailer and supplier is difficult to achieve, but inherently valuable. "The biggest problem we see is the unknown. It's not uncommon for retailers to have a less than accurate view of their trading communities," he says. In fact, Feeney says retailers are typically between 10% and 50% incorrect about who their trading partners are. "Most simply don't have a good way to keep that information current," he says.

Kubera is a proponent of certification for supply chain managers. "Certification can help ensure your users are educated and able to understand the metrics and variability of the supply chain." The Council Of Supply Chain Management Professionals is one organization Kubera recommends. The Council offers both general certification and certification in specific supply chain processes.

Regardless what stage you're at in the evolution of your supply chain, Feeney points out that a clear goal is key to the success of any supply chain initiative. "Retailers should have a good, specific vision for what they're trying to do or the problem they're trying to solve. If you have a good view of what you're trying to do [reduce costs by 10% for instance, or improve trading partner compliance 50%], then you can measure your success."