Supply chain strategies to meet changing consumer demand

Supply chains are not working the way they should. The habitual, endless pursuit of cost-reduction at the departmental level has led to a supply chain that is not aligned as a whole, and therefore cannot accurately meet demand. To survive, suppliers must resolve to make the right change now to become more effective today, and more competitive for the future.

Responsive supply models are not new. At the core of these models is an integrated an holistic view of how to meet the ultimate goal of the supply chain, leveraging a throughput-based model that’s supported by modern technologies and systems.

The goal is to challenge the inherently flawed traditional merchandise planning processes that undermine profitability, and offer a new, proven approach for taking improved decisions about what to make, buy, order or ship.

The advantages of a supply chain that responds to real consumer demand

This new approach starts with the recognition that the ultimate goal of the supply chain is to get the right products into the hands of the consumer in exchange for money. Money makes the whole system work, but it only actually enters the system once the consumer has the product in their hands. Then and only then is the goal of supply complete.

Looking at this system at a larger scale, we can see that this end-result is only fully achieved when suppliers can ensure the exact right amount of the product is available at the right retail points at the right time – when the consumer comes to buy. No more, no less, not before, and not after.

 

Total sell-through

The biggest advantage for companies who employ a responsive supply model is that it effectively de-risks the whole supply operation. Instead of pushing large quantities of products down the chain like a ‘hot potato’, suppliers will only ship what is going to sell during the replenishment interval. The quantity of products supplied to the consumer will be exactly correct, and near-total sell-through will occur for almost every SKU where a responsive supply is correctly applied.

The only margin for ‘error’ is the amount of stock held in buffers at each node. Cost-per-item is no longer weighed against an unknown sell-through rate or discount rate and, when using the fully automated system we describe, total sales visibility is achievable.

Seen from a responsive perspective, the traditional ‘top down’ planning has made way for the ‘bottom up’ and much more granular planning and decision making.

An example is the allocation decision. Imagine placing 5000 T-shirts in sizes S, M and L in 100 stores for a period of 26 weeks (a season).

We expect to sell on average 2 T shirts a week per store, but of course do not know exactly which T shirt will sell where, so we buy 100 X 26 X 2 = 5200 and push an initial allocation of, say, 70% (3.640) of these to the retail shops. Every shop gets on average 12 T shirts. The best shops get 24, or even 36, and the stores with lowest sales get 6, or even 3. After a few weeks, or when the sell-through hits 50% or so, the remainder is sent to the shops that have sold through the most. That was the old way.

In the ‘new way’. Fewer T shirts would be allocated and every day, the system would again determine the new need, based on the latest data. This is possible with much more calculating power.

And we only need to forecast ‘How much consumption can reasonably be expected until the next delivery?’. The key is therefore to synchronise the whole supply chain with retail consumption. This can be done in steps, starting with the ‘last mile’ to retail.

Responding to demand in real-time

The retail arena has never been more competitive. Technology has accelerated information flow and retailers need to react at lightning speed to increasingly fickle consumer demands. At the same time, retailer commitments (to make or buy merchandise) are still placed seasons before consumers come to buy, perpetuating the problem of stockouts and redundancy – the biggest margin killers in consumer goods supply chains.

To significantly improve the productivity of retail offers everywhere, retailers must adopt a responsive planning process that continuously adjusts product supply in real-time to meet consumer demand everywhere.

Moreover, a supply chain that is fully integrated and responsive to real demand has a competitive advantage that goes beyond meeting demand at the point when/where consumers come to buy. The connected links in a responsive supply chain are able to work towards a common goal of increasing sales (system throughput), while supplying only the goods that are actually demanded. When this happens, each link is no longer favouring cost-effectiveness at the expense of the overall effectiveness of the supply chain, and instead a natural desire to reduce lead times results in less waste via more accurate supply.

Conclusion

When demand is perfectly met by a precisely balanced supply the result is always the best price, total availability, and an optimal result for all parties. Getting this balance right has always been difficult, and today it is even more so.

However, achieving the optimal supply to consumers is, in fact, entirely achievable. At Retailisation, we offer brands and retailers the possibility to have a trial pilot or proof-of-concept to prove the value if this new supply model. Once the evidence is there and they are satisfied with the results obtained, these companies can scale-up and increase profitability across the entire organization.

Get in touch if you’d like to learn more about our platform.

Jasper Zeelenberg
CEO, Retailisation

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