Page 53 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Logistics and Supply Chain Management

Notes Working with a leading edge supply chain consulting form, the retailer realized that the
increasingly unpredictable nature of consumer behaviour makes planning more and more
difficult. So, more time is spent on planning but the results are less valuable because
planning involves making assumptions about what will happen rather than reacting to
what customers are actually doing. Consequently, the retailer determined that the only
way to be responsive to increasing consumer demands was to build processes and define
rules that required less day to day planning. According to the retailer’s VP of Supply
Chain, “Ten years ago, we made a fundamental choice to no longer believe in the power
of forecasting. We don’t believe in the predictability of customer behaviour. As the offer
in products, information and services keeps growing forecasting is getting more difficult.”
They quickly determined that this required development of a highly automated
replenishment process with a single point of customer demand forecasting and centralized
control management.
“Now the supply chain is designed as a pull chain with input from customer behaviour
and forecasting models. The base for logistics is what the customer buys supported by
other parameters around when do customers visit.” says the retailer’s VP of Supply Chain.
Decisions and store planning and forecasting needed to be much more reactive which
required the availability of continuous, near real-time information. Traditional processes
were typically built around batch processing cycles, usually one per day. Moving from a
batch to a flow system (continuous operation and continuous decision making) facilitated
individualized delivery schedules based on geography, transport costs, type of merchandise
etc. Naturally, some batching still occurred in the process, such as deliveries to the
distribution centre from suppliers or the start of a new promotion but the emphasis is on
continuous flow of information, with no artificial barriers to impede the reaction time.
To determine how much of a particular product to send to a particular store requires
knowledge of the present and historic service levels as well as constraints of both the
product and the store. Each item/store combination has a unique set of parameters. For
some products, such as dry groceries, the parameter is simple- when one full case is sold,
one new case is ordered. But for items like fresh produce, factors like the desire for
freshness, an attractive presentation and the cost of shrinkage must all be taken into
account before deciding on an order schedule. Predictive forecasting is only used for
special situations such as promotions and events. Once the promotion is started, however,
ordering is quickly adjusted to reflect actual consumer behaviour in the store (e.g. real
time POS data).
According to the retailer’s VP of Supply Chain “The replenishment process is now fully
automated. We have a central control room where the switchboard is operated. Here we
monitor the assortment behaviour, the effect of the weather, the differences in revenues
compared to that type of local store etc. It is all in one place and there is centrally integrated
responsibility for all DCs, local stores, etc. Local stores only have to focus on sales, their
store (clean, products available) and customer attention. The central department decides
what products come in, in what amounts and prescribes how to fill the store. The store just
has to execute.” As a result of these enhancements to their planning and replenishment
processes, the retailer was able to realize some substantial benefits including a 50%
reduction in out of stocks. The amount of time employees spend on store processing has
declined significantly and improved availability of goods, fewer leftovers and less time
spent on ordering has translated into more time for employees to work directly with
customers.
In addition, supplier investigation into product availability also proved that availability
increased 14% during promotions. Most importantly, however, the net result of creating
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