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Imagine that you could somehow know every product movement that will be taking
place in the retail supply chain, every day for the upcoming 52 weeks:
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Future point-of-sale transactions for every product at every store on every day. |
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Every replenishment and shipment request between every store, distribution
center and manufacturing plant in the extended supply chain. |
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The inventory balance for any product at any location on any future day. |
Imagine that this information is completely updated and refreshed on a daily
basis. When sales come in higher or lower than expected at the retail store, the
precise impact to every other node in the supply chain is instantly and
automatically modeled in near real time. Today’s DC and manufacturing schedules
are completely synchronized with what happened on the store shelves yesterday.
Imagine how your fill rate would soar with these early warning signals
continually hopping through the supply chain – not only with the most current
“news from the front” but with specific, unambiguous responses that need to be
made by each partner in the supply chain.
And imagine how productive your assets (particularly inventory) would be if
planning information was so up-to-date and accessible that you could wait until
the last possible moment to deploy them and still make your service commitments.
No matter where you play in the retail consumer products supply chain, you’ve
been aching to work this way for years, but it’s been just beyond your grasp.
The point-of-sale (POS) data is being collected and stored. The communication
links and standards have been established. The computing horsepower is finally
here. What you lack is a concrete, simple and transparent approach for using it
all.
In the past, most of the planning effort in the retail supply chain focused on
distribution and manufacturing. But failing to include retail stores in the
planning process is like ignoring 95% of the inventory locations in the supply
chain. Even worse, the locations being neglected are the ones that directly face
the customer and hold the most costly inventory. Flowcasting is the first
approach that makes consumer demand at the retail store the focal point for the
time-phased planning of inventory and replenishment throughout the retail supply
chain.
Starting with a forecast of sales, by product, at the store shelf, Flowcasting
uses the same time-tested approach at the retail level that’s been used in
distribution (DRP) and manufacturing (MRPII) for years. The idea is simple: Once
each store has forecasted what they expect to sell, they can calculate what
they’ll need to bring in as a simulation based on their current on hand balances
and ordering rules.
In essence, every inventory location is treated like a bank account – if you
know your current account balance (current on hand inventory) and can estimate
your future planned withdrawals (sales forecast), you can figure out when your
future account balance (projected on hand) will drop below your minimum balance
(safety stock or merchandising requirements). Before that actually happens, you
need to make sure you make a deposit (planned arrival).
Planning Your Cash
|
People’s Bank – Account
#9876543 |
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Today’s Balance |
$1650 |
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Minimum Balance |
$1000 |
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Wk1 |
Wk2 |
Wk3 |
Wk4 |
Wk5 |
Wk6 |
Wk7 |
... |
Wk52 |
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Withdrawals |
$250 |
$750 |
$900 |
$800 |
$450 |
$1100 |
$675 |
... |
$500 |
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Deposits |
|
$1500 |
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$1500 |
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$1500 |
|
... |
$1500 |
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Balance |
$1400 |
$2150 |
$1250 |
$1950 |
$1500 |
$1900 |
$1225 |
... |
$1750 |
Planning Your Inventory
|
Product #1234567 @
Store #330 |
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Current On Hand |
28
units |
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Safety Stock |
15
units |
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|
Wk1 |
Wk2 |
Wk3 |
Wk4 |
Wk5 |
Wk6 |
Wk7 |
... |
Wk52 |
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POS
Forecast |
6 |
10 |
8 |
35 |
5 |
9 |
11 |
... |
15 |
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Planned Arrivals |
|
12 |
|
36 |
12 |
|
12 |
... |
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Projected On Hand |
22 |
24 |
16 |
17 |
24 |
15 |
16 |
... |
19 |
Furthermore, because the rules
governing bank accounts are so simple, transparent and standardized, you can
quickly and easily recalculate your entire plan if one of your future planned
withdrawals (e.g. your phone bill), turns out to be higher or lower than you
were expecting.
So it is also when you plan the supply chain with Flowcasting. Because the sum of the stores’
planned arrivals represent a stream of planned withdrawals from the retail DC
(and so on, right back to the manufacturing plant), the chain reaction of demand
throughout the entire supply chain is recalculated on a daily basis as market
conditions change. The retail store is the only place where future withdrawals
(i.e. POS sales) need to be estimated.
As a result, the Flowcasting approach differs considerably from traditional
approaches and improves upon a number of key challenges in retail supply chain
planning:
|
Flowcasting
Approach |
Traditional
Approaches |
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Avoiding
Out-of-Stocks |
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Rarely would
stores be given the chance to run out of stock. If POS sales on any given
day are higher than expected, the chain reaction of demand will immediately
and automatically react. |
Shelves could be
in a stock low status for days between order reviews. Often, it’s only
caught when a customer complains that the shelf is empty. |
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Forecasting Your
Customers’ Needs |
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Suppliers receive actionable
information (how much needs to be shipped and when) from their retailer
customers, giving them unprecedented visibility into what demands will be
placed on them, weeks and months into the future. As a result, they can
eliminate key account shipment forecasting and offer shorter commit times
and supply protection to their retail customers who Flowcast. |
Suppliers invest significant
effort in determining what their customers are going to do because the
supply chain isn’t completely connected from a planning point of view. It
often boils down to two choices: angry customers or clogged warehouses. |
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Developing
Aggregate Plans |
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Future dated demand, supply and
inventory information exists in selling units at every level in the retail
supply chain. As a consequence, it’s possible to convert and aggregate
Flowcasting plans to any level desired in any unit of measure. |
Functional areas develop their own
separate methods for forecasting capacity requirements, budget requirements,
transportation requirements and labor requirements. Rarely do these
forecasts all agree, unless by coincidence. |
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Continuous
Re-Planning Based on New Information |
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Forecasting is completely
decoupled from supply planning. Because the rules of Flowcasting are simple
and transparent, network changes, web retailing, VMI, store direct
shipments, cross-docking and temporary supply changes can all be re-mapped
and recalculated quickly and accurately. |
Nothing is seamlessly connected,
so it takes days or weeks of analysis to try to judge the impact of a
network change. At the end of it all, flawless execution of the change is
dependent on a huge number of assumptions all coming true – a rare
occurrence. |
The Result?
These unprecedented improvements in responsiveness and control provided by
Flowcasting means that store level customer fill rates of 98 percent plus are
achievable by simultaneously reducing total supply chain inventory by 30 percent
or more!
* Flowcasting is the extension of the Distribution Resource Planning (DRP)
process created and implemented by Andrė Martin at Abbott Laboratories in the
mid 1970’s.
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