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Despite constraints on new spending in the current business environment, retailers are compelled to think about a new way of delivering a transformed retail supply chain that is responsive to the immediate needs of the rapidly expanding demandsupply network. The multi-enterprise, multi-warehouse, and multi-channel retail supply chain environment needs to undergo a paradigm shift in order to align itself to current economic reality, escalating supply chain costs, and increase customer service demand.

Applying a new, systematic way of thinking to manage today’s retail supply chains can help companies build highly competitive and synchronized demandsupply networks for future success.

Collaborative processes, not just internally, but – crucially – with external supply chain partners are necessary in this environment. New technologies and delivery models, such as SaaS, should also be explored to eff ectively enable supply chain collaboration and execution.

The retail industry has been extremely influential in the movement towards outsourced manufacturing and supplier relationships. Though retailers have been scrambling to outsource their manufacturing and meet the demands of an expanding multi-channel supply chain, they have not been diligent enough in focusing on the supply chain. In fact, 53 percent of companies indicate that it was only in the last five years that they even started having supply chain initiatives.

UNDER PRESSURE

Between August and September 2009, Aberdeen surveyed 153 retailers to reveal that these companies are finding that it has become difficult for companies to stay informed and in control of every stage of their supply chains, as the responsibility has been spread throughout the network.

The reason why the increased lead-times for delivery of products is a key issue is due to the increase in outsourced manufacturing, which results in a loss of visibility and control. The low inventory turns can be due to several reasons, such as reduced customer demand, lack of visibility into customer demand resulting in the wrong products being stored at the shops, and lack of coordination across different channels resulting in excess inventory. The increased distribution and transportation costs can also be attributed to several reasons, such as volatile fuel prices, increased shipping from global locations, lack of supply chain, and logistics maturity.

Aberdeen used four year-over-year key performance criteria to distinguish Bestin- Class, Industry Average, and Laggard enterprises (the mean values of these metrics across the three categories are outlined in Table 1):

• Increased fill rate – the percentage of customer demand fulfilled by on-site (instore) on-hand inventory

• Increased perfect order compliance – the percentage of orders that are on-time, complete, damage-free, and fulfill accurate documentation

• Increased inventory turn rate – the ratio of finished goods inventory/sales revenue

• Increased forecast accuracy – defined in terms of forecast accuracy at the product family level

While there’s little doubt that today’s economic environment is tough for retailers, but some are adopting proactive supply chain initiatives and strategies to address the key pressures outlined in the chart:

• Increasing collaboration initiatives with suppliers – in moving towards more balanced demand-supply processes, companies need to increase the extent of collaboration on both the demand and supply sides of their company business networks.

• Improving sales and operations planning (S&OP) – to ensure that customer demand is sensed and enable companies to achieve supply and demand goals through greater optimization of inventory management, forecasting, and customer service. Retailers have traditionally not focused on this area as a strategic imperative.

• Developing multi-site visibility – transportation and warehousing management are key areas that retailers need to focus on in order to get multi-site visibility. International trading has resulted in a dramatic increase in the need for managing transportation and warehousing costs.

PRIMARY PILLARS

Best-in-Class retailers strive to execute value-chain and business process improvement strategies in order to address the macroeconomic pressures of increased lead time for delivery of products from suppliers, and internal pressures such as historically low inventory turns which ultimately reduce full-priced product sales due to markdowns.

Detailed below are three primary pillars that support strategic supply chain transformational strategies to overcome the lack of consumer focus and fragmentation in the supply chain planning, execution, evaluation, and analysis process components.

Consumer demand response

As part of the integrated demand-supply network in retail, the critical components of understanding holistic consumer demand requires intensive mapping of the internal demand planning organization with the integrated view of sales channel demandrelated data from sources including point-of-sale (POS) transaction data, shipping data, syndicated secondary consumer data, electronic data interchange (EDI) or trading partner data.

In retail, availability of comprehensive consumer-demand data enables category and unit-level forecasting and planning which, in turn, supports the calculation of pre-season and in-season demand branded, private-label, and required quantities of safety stock. Early adopters of demand management technologies have gained an edge in establishing pre-season and in-season shelf-level demand-supply parity and optimized levels of safety stock both in the manufacturers and retailer’s supply chain.

Collaborative supply chain

A demand-driven supply chain management strategy takes into consideration the rising importance of a collaborative supply chain for succeeding in the multi-enterprise supply chain, especially in difficult economic times. Integrating varied data sources is by no means trivial. For instance, integrating trading partner data is not an easy task – it requires a foundation of electronic connectivity with the partners.

In the retail industry, collaboration across the supply chain is hampered by multi-generational supply chain applications, legacy IT thinking, and distrust between retailers and suppliers. However, several Best-in-Class retailers are exceptions to the norm. An appropriate example is with tier 1 retailer Target, which is currently undertaking a major EDI relationship and EDI data format review and overhaul process to create data uniformity and synergies across the board for improved purchase and settlement efficiencies.

Early adopters of the visibility and collaboration technologies have been able to use these systems to gather and manage the supply chain partner data. Having the right internal organization and the ability to integrate partner data are the prerequisites for effective supply chain partner collaboration.

Some specific areas of Best-in-Class retail collaboration include: involving suppliers and customers in the retail headquarters’ (S&OP) process; collaborating with customers on forecasting to ensure more accurate demand-supply matching; collaborating with suppliers on inventory management, to reduce lead times and potentially lower inventory levels; and collaborating with suppliers on invoice reconciliation, to improve invoice and payment processes.

Integrated planning and execution Visibility and responsiveness have become the necessary ingredients for success in today’s multi-tiered demandsupply networks in retail. Best-in-Class companies are able to achieve the level of responsiveness needed to manage supply chain disruptions and risks, and are also focusing on multi-user multiwarehouse inventory flow processes and enablers in the areas of in-bound product flow visibility for all internal and external extended supply chain stakeholders who are involved in ensuring that products reach the right place at the right time, whether it is the retailer’s DC or store.

REQUIRED ACTIONS

Whether a company is trying to move its performance in retail supply chain processes and systems performance from Laggard to Industry Average, or Industry Average to Best-in-Class, the following actions will help spur the necessary performance improvements.

Laggards Steps to Success

A mere 36 percent of Laggard retailers compared to 61 percent of Best-in-Class companies currently possess the ability to automate purchase order visibility for suppliers and distributors and establish an end-to-end inventory workflow for effective warehouse and shelf-level inventory management. Purchase order visibility is vital for tracking the import process, settlements, variances in deliveries, damaged items, overall cost of import operations, and size as well as position of the order quantities at any point in the delivery.

The net impact is on the retailer’s cash-tocash conversion attainment. Early adopters of vendor portals for visibility and focus on improving inventory workflow have gained the edge in optimized levels of stock both in the manufacturers and retailers supply chain.

Laggards also have room to improve in establishing metrics, guidelines, and norms for effective supply chain performance management within warehouses, suppliers, and distributors. Laggard organizations can gain the edge by first executing an end-to-end business intelligence (BI) reporting and delivery strategy, which starts with centralized supply chain data management that is implemented using data warehouses for data sorting, assembly, storage, and delivery. These benchmarks must correlate with the three pillars of the 21st century retail supply chain: consumer demand response, collaboration, and integrated logistics.

Industry-Average Steps to Success

Only 24 percent of Industry Average have the ability to track accrued supply chain costs at the line-item level at all logistics stages in the supply chain. Another 56 percent of Industry Average retailers indicate they plan to adopt better logistics costs tracking and visibility capabilities in the next two years.

Transportation and logistics is among the top three costs criteria in retail supply chains and companies must track its effectiveness in order to control overall supply chain costs and inventory holding costs year-over-year.

Measurement is the first step to forming a strategy to reduce costs across the multi-enterprise supply chain. This is an area that can provide significant ROI by shedding light on areas that are high-cost which then can be looked at for process improvement activities.

Industry Average companies should also look to consolidate multi-generational supply chain applications into one integrated workflow from concept to delivery. Only 46 percent of these companies (compared to 60 percent of Best-in-Class) have an integrated SCM BI suite for performance metrics, and only 43 percent have a CPFR application.

Most importantly, our research indicates that Best-in-Class companies are moving towards fully integrated multi-enterprise and multi-tier supply chain system platforms that are characterized currently by four core applications and one services component: including warehouse operations, demand forecasting, supply chain planning, in-bound visibility, and third party logistics services (3PL). Industry Average companies have to follow the foot steps of the Best-in-Class in this regard.

Best-in-Class Steps to Success

One area where these companies can improve is in the automation of multi-channel data access for retail headquarters, warehouse, and suppliers’ job-roles. Only 44 percent of the Best-in- Class are able to provide this type of multi-channel demand and supply chain data access even though over 75 percent of retailers who replied to the survey have digital channels such as web, mobile, non-digital channels such as catalogs, and the conventional besides brick-and-mortar stores. Retailers need to fulfill optimum shelf-level in-stock requirements and related logistics network capabilities due to the varying levels of customer demand volumes required by the varied channels.

The other common complexity in retail that increases supply chain demand-supply network risks is the fact that hitherto a bulk of retailers implemented their multiple channels as separate business units that own and operate separate inventories, merchandising, and supply chain strategies.

The need to improve economies of scale and the economic downturn has compelled organizations to consider adopting vendor portals, in-bound and out-bound inventory visibility, and restructuring EDI data sharing solutions so that all supply chain stakeholders receive a unified view of multi-channel demand and supply data with common standards for effective supply chain planning and execution.

Another improvement opportunity for Best-in-Class is implementation of real-time access to multi-enterprise supply chain data, given that only 45 percent of the Best-in-Class currently have satisfactory capabilities to incorporate trading partner data into internal processes. This demonstrates the need for a real-time data collection, assembly, and delivery management approach.