Supply chains have evolved greatly over the last two decades, largely boosted by the information systems revolution that provided advanced capabilities to manage and control a vast scope of transactions. By offering process efficiency, supply chains all over the world have increased profitability, an elusive achievement, especially in the retail business. The transformation from manufacturing supply chain to retail supply chain has reshaped the way retailers connect with their suppliers and opened a window to much needed collaboration.
Grocery retail has a great diversity of items, as well as one unique attribute: the inventory has an expiration date. This makes supply chain design a bit more sensitive – when in Rome, behave like a Roman. It’s hard enough to manage the inventory; can you imagine doing so on a clock? All retailers are familiar with slow moving stock, but what happens if tomorrow a portion of your stock has zero value because it is no longer usable? This is where things get interesting.
One of the most thrilling sequences of an NFL game is the two minute offense. The last two minutes of the first and second half produce many “money-time” moments. When the game is stopped for the two minute warning, from that moment on it’s a different type of game. The offense knows it has little time to score and the defense knows this is the right time to apply increased pressure and look for offensive mistakes. A grocery retail supply chain feels the same heat as the two minute offense in the NFL. We are on a clock and cannot afford to have the wrong level of inventory, because the stakes are too high.
I’m just concluding a very intensive month that I’ve spent working with a very talented and determined JDA team led by Franck Lheureux and Vinay Audipudi. We began this chapter on the 4th of March, 2015 with a deep look into Mega Retail’s JDA Demand and Fulfillment solution setup by the project team headed by Tony Drake, as the project manager, with Najjal Joshi as the solution architect, and with strong technical support from Steve Cassidy, the senior technical manager. Together, we have learned a lot about the current setup of the Demand and Fulfillment solution at Mega Retail, outlined the needed steps to improve the current outputs of the system, and prioritized the future steps.
We chose to focus on the order recommendation processes for the stores and the distribution center. Our hope is to gain the stores’ confidence in the supply chain function’s ability to forecast and replenish, and to allow the stores to control and update their planograms, as well.
In order to have a proper forecast and replenishment process in grocery retail, you need to make sure you have several bases covered: inventory accuracy, point-of-sale data, in-transits, promotions information, inventory policy, and safety stock. Inventory accuracy is the most important issue because this is the fundamental building block for all calculations in any replenishment system. Does achieving high inventory accuracy seem easy to you? I didn’t think so. When you have thousands of items in an open (store) environment, it is hard to keep track and make sure the numbers are in-sync with the actuals.
You can start with making sure you have no negative values in your systems, as those are proof of having an inventory accuracy issue. Check those and then go on to monitor inventory that has frozen in time – meaning those items that have the same on hand value more than three days. It might indicate that your customers can’t find them or you no longer have them on hand. There are more things to do regarding this issue; be creative and you will sure improve this KPI.
In American football, coaches look for the average yards per play and negative yardage as KPIs for tracking the success of the team’s offensive squad. Having negative yardage plays indicates the offensive team has issues performing under the opposing defensive pressure, and the coach should shift the play selection to better match the situation or consider using substitutions to replace players that are having a bad day on the field. Being aware of what matters is the key to successful management of your supply chain and your football team.
Another important issue is the in-transits. Those are all the incoming open orders that are expected to arrive on a preset schedule. It’s important to keep a close eye on those as statistically some of them will not be fulfilled. That means your business will probably lose sales because when the customer reaches the shelf, the item will not be available. Also, bear in mind that if the supplier is late, your order point will be disrupted, meaning you again are losing sales. The right thing to do is to place a strong fulfillment policy on your order and close orders as soon as your suppliers are late. This way you get more control and reduce the risk.
Finally, make sure you have the right inventory levels policy and safety stock rules in place in order to provide solid support to product availability without increasing inventory costs. Now, do it daily, for thousands of items, for tens of suppliers and for hundreds of stores. Do you feel the heat?