In an earlier post we wrote that to get step-like improvements in performance, you need to dramatically change your process. Our example was the Fosbury Flop, the standard high jumping technique popularized by Dick Fosbury in the late 1960s.

Here’s a little something most folks don’t know about his innovation. Not long before he introduced the technique, the high jump landing areas were changed. Instead of jumpers landing in a sand pit, they would now land in a soft bag. Imagine trying the flop if you had to land in sand? Ouch!

The point is that sometimes outside changes facilitate new ways.

The same is true of Flowcasting. Recent advances in computing juice have made it possible to process the large volumes of data in retail.

Posted by Mike Doherty at 10:27 PM | Permalink | Comments (0) | TrackBacks (0)

Brian Kilcourse, founding Partner of Retail Systems Research recently published an interview with Andre regarding retailers and manufacturers and their ability to cooperate. Here's how it went:

According to André, there are three enemies to true cooperation and collaboration in the retail value chain.

First, “There is a deep misunderstanding about what truly drives the retail supply chain. Companies must address this first; otherwise they will continue to seek solutions that don’t apply. When people don’t understand a problem, they seek complicated solutions,” he says. “Once they understand the problem, they realize that the solution is really straightforward.” Martin points to the fact that even after decades and billions of dollars spent on complicated technologies, the retail ecosystem is still clogged with huge inventory levels and a persistently slow turn rate. According to the author, this fact alone should encourage decision makers to think differently.

The second enemy of true collaboration is unwillingness on the part of retailers to share information with their partners. “The pendulum swings between retailers who will only ‘sell it’ and those that empower manufacturers with infrastructure,” according to Martin. “Those retailers that put the infrastructure into place so that manufacturers can co-manage the supply chain with the retailer are winning.”

André cites unwillingness to work as a team as the third enemy.

Enemy #1 is the fundamental problem. Martin simply states, “The real driver of the supply chain is the consumer, plain and simple. But if we conducted a study asking retailers, wholesalers, and manufacturers what drives the supply chain, we’d get all sorts of different answers. Ultimately, it boils down to whether or not the consumer buys the product.” Although this might seem obvious, Martin discussed two recent examples where a manufacturer his company is working with lost millions on a new product promotion that didn’t go as planned. “The manufacturer spent a lot of money to create the demand, manufacture the product, and get it into position to be sold. Then they spent more money taking back the unsold inventory – all as a result of poor assumptions in the plan.”

So where does it go wrong? According to Martin, the answer is twofold: the wrong information is often used in forecasting demand in the first place, and there was not enough visibility into the entire chain to take quick corrective action when it was needed. By “the wrong information,” André means “aggregations,” and specifically, aggregations of demand data one or more levels up from where consumer demand is serviced- in the selling environment. “Aggregating hides inaccuracies, and it takes away your ability to look,” he says. Even for very well run retail companies, Factory2Shelf has been able to measure differences between DC-level demand forecasts and per-store forecasts of up to 15%. It is typically aggregated forecasts that are being shared with manufacturers, and the result is almost invariably an over-inventoried supply chain – to avoid the even more damaging problem of out-of-stocks.

Martin offers a different approach. The author advises, “Don’t forecast what you can calculate,” (perhaps borrowing the phrase from his years of involvement in DRP practices). Here’s how he explains it: a retailer typically generates both store-level and DC-level forecasts; the manufacturing partner will produce a forecast for its distribution network and another for its manufacturing plants. All four of these forecasts are performed independently of each other, using different units of measure (eaches, case pack, pallet, etc.) and often different time frames. At every step of the way, a different result is generated, and those differences create “friction” (inaccuracies that should be - but often aren’t - resolved). Martin suggests that if the retailer shared true demand data at the transactional level, that data could be used to calculate appropriate quantities at each point upstream in the supply chain. The result would be both better order quality and improved service levels, while reducing inventory in the pipeline. And to the extent that the data is made available daily, all the partners co-managing the chain can react to changing conditions at the store level.

If this sounds familiar, it’s because the problem is not new, as every retailer knows. I asked Martin how Factory2Shelf’s approach differs from or augments the VICS CPFR (“Collaborative Planning, Forecasting, and Replenishment”) process. Martin sees the “Flowcasting” process as taking CPFR to the next level by refining the current collaborative planning concept. He explains: “With CPFR, retailers share information about what they think they will sell with their manufacturing partners. The information is aggregated for all the stores supported by a retail DC. Manufacturers take on the responsibility to replenish the retail DC’s after the partners agree on service level and inventory turn objectives and on what each DC will require. This is an excellent start but, by aggregating to the DC level, the partners miss a key ingredient – what is happening on a store-by-store basis. Flowcasting uses unaggregated store-level demand data.”

Posted by Mike Doherty at 09:26 PM | Permalink | Comments (0) | TrackBacks (0)

In the current issue of Supply and Demand Chain Executive (www.sdcexec.com), Andrew K. Reese, editor, writes…

Which is why Michael Mayoras, CEO of supply chain provider RedPrairie (www.redprairie.com), is excited about a recent trend that he has been seeing in his customer base, which includes retailers, consumer products manufacturers and distributors. They are moving to put in place processes and systems that would more closely link events "on the ground" in the retail center to what is taking place in real time back on the manufacturing shop floor. "Manufacturers are looking to understand what's happening now at the retail point of sale and then adjust their supply chains accordingly," Mayoras says.

Ten years ago, he continues, supply chain wasn't necessarily a part of that kind of conversation at a manufacturer. Marketing and merchandizing decisions remained siloed on the sales and marketing side of the business, while supply chain was left to handle the execution side. "There's more recognition now that supply chain has a very tight tie to how products are arranged and moved on the shelf," Mayoras says, "so supply chain is in the middle of all those conversations." Furthermore, companies are trying to figure out how to use their supply chain application assets to tie point-of-sale intelligence back to the plant so that they can better allocate the right mix of resources in a given shift, based on a given forecast or demand signal, and do that more accurately and more quickly than in the past.

Hmm...does that sound like Flowcasting, or what?

Posted by Mike Doherty at 11:41 AM | Permalink | Comments (0) | TrackBacks (0)

On January 11, 2008 Evan Schuman reported that…

Last year, retailers lost about $93 billion because customers couldn't get the products they expected, according to a study performed by RIS News and the IHL Group.

The report identified these as out-of-stocks but it used a rather expansive definition of out-of-stocks, including in-stock products that had an incorrect price as well as in-stock but misplaced product that neither the customer nor the associate could easily locate.

But IHL President Greg Buzek said the figures "did not factor in any increase for the holidays" and used September as a standard month. "So the figure in real life is about one and a half times this number," he said.

The report broke down the $93 billion as: can't find help (22.8 percent); price on product higher than the price from the ad or online (13.5 percent); associate can't find inventory (11.3 percent); empty shelves (28.7 percent); and customer "left for some other reason" (23.7 percent).

Another problem that Buzek found were global supply chain issues that prevented stores from getting adequate notice when merchandise delivery was going to be delayed. "They had no work in process inventory information until it hits the docks in China," Buzek said. "So they don't know it's late until it's too late."

We’re completely convinced that eventually Flowcasting will put a huge dent in this huge number…..for my wife’s sake, let’s hope so!

Posted by Mike Doherty at 11:05 AM | Permalink | Comments (0) | TrackBacks (0)

“It’s only when the tide goes out that you discover who’s been swimming naked.” - Warren Buffett

The only true demand in the retail supply chain is consumer demand at the retail shelf. Up until that point, inventory is being transferred from one place to another, adding cost but delivering no economic value to anyone. Upstream requirements are dependent on the demand of the consumer.

This seems self evident, and we have yet to find anyone who will flatly disagree with that statement. Yet many organizations continue to hold the belief that “If only my customers would give me their firm orders sooner, I’d be able to plan and execute more efficiently and with less inventory.”

Over the years, we’ve heard variations on this theme from many CPG manufacturing companies, lamenting the fact that their retail customers are constantly shifting their orders around and playing havoc with their relatively static production schedules. While this is a costly problem, simply using buffer time to shift the risk downstream is not really a solution – and over time it will actually make things worse.

Think about it. If everyone is simply trying to optimize their own piece of the retail supply chain puzzle by pushing their risk downstream, then wouldn’t the retail DC want to increase its lead time to the stores to improve order fill and inventory turns? After all, what’s good for the goose is good for the gander, right?

Now if the factories and DCs can "buffer their way to efficiency" by pushing all of their risk forward in the supply chain, then what is the retail store supposed to do? Insist that all of their customers place advance orders 48 hours before they plan to go shopping?

If increasing lead time is a valid way to gain efficiency, then it should apply across the entire supply chain – from the factory to the retail store. Obviously this is not the case, as – for the foreseeable future – retail stores will continue to experience demand from their customers with no advance warning whatsoever.

Let’s revisit our original premise – that the only true demand in the retail supply chain is consumer demand at the retail shelf. When you look at the supply chain in this light, then increasing buffer time does nothing but put more distance between the customer and everyone who’s trying to satisfy that customer.

Reduce uncertainty and you reduce your risk. Reduce your risk and you reduce the need to hedge the risk with buffers.

By creating a time-phased demand and supply plan that starts with the consumer and encompasses every node in the supply chain, it’s actually possible to reduce lead times AND buffer stocks for a more responsive and cost effective supply chain.

So when the tide goes out, you’ll have your swimsuit on.

Here’s to a prosperous 2008!

Posted by Jeff Harrop at 07:30 PM | Permalink | Comments (0) | TrackBacks (0)