By Robert Bruce

The Basic ABC’s & the 1,2,3’s…

Years ago back in my early Wal-Mart days, collaborative planning, forecasting and replenishment was the next step to taking inventory and cost out of the network while increasing product availability at shelf, in-stock and sales. The journey of improving store shelf in-stock started with refining inventory management policies while building efficiency in replenishment processes and linking plan-o-gram and modular decisions.

With all the talk of process re-engineering and new technologies, it still seems like in some organizations that everyone is operating in a vacuum and doing their own thing. Each have their own little kingdom, rules, objectives and incentives. It doesn’t take long to see that individuals often have different, often conflicting, objectives that directly relate to their specific function as opposed to taking a broader view to benefit the total company’s profitability.

Giving the Customer What They Want Means Managing at the Item Level

When you start with one item at one store you start seeing on hand quantities don’t necessarily conform to what the consumer is wanting to buy and when. Consumer demand is not always the driver of space allocation at the shelf, the restocking or delivery cycle, but is often a function of pack size. For those who look at building in direct product profitability (remember the P&G DPP program?) you start to see inconsistencies and opportunities with almost every item. Managing items both at the store and distribution center creates opportunities to take cost out and build profitability in at each step.

It is not just managing items at the store. After you get your policies in line to optimize sales, inventory and profitability—then you find out the supplier can’t ship! This is your justification for having your suppliers and transportation providers part of the process rather than reacting to it.

Islands of Collaboration

Islands of Collaboration is what I like to call a lot of the current CPFR® programs between retailer and supplier today. My philosophy was that a radical process change is needed every three to five years to drive a significant improvement in sales and profitability. Otherwise, you would experience only incremental improvement that would not widen the gap with the competition. Through process integration, joint demand planning, inventory management/replenishment policies and methods and innovative supply chain initiatives the bar was always being raised and best practices redefined. It gets back to: you’re only as good as your weakest link.

Integrating Demand Planning

The weak link is the break or disconnect of retail demand level processes with supplier account teams. More often than not, demand, information or communications are not connected to corporate demand planning, advanced planning and scheduling, sales operations planning, production and logistics. Most of all the potential advances and benefits for the supplier are being lost, due to poor synchronization of processes and information. In other words, “islands of collaboration” exist where there are CPFR® programs operating, but the conclusions of these collaborative sessions are not going anywhere.

The major focus for retailers and their suppliers at this point should be on integrated demand planning—linking process, activities, and information—based on a consumer driven demand and supply chain (value chain). There are a handful of industry leading manufacturers that have internally linked these processes by:

  • Internal collaborative demand planning meetings that feed sales operations planning and production requirements.
  • Establishing collaborative programs with raw material suppliers.
  • Integrating inbound coordination with logistics partners.

You are then creating a process for jointly managing the business. This is one of several driving forces for Trading Partner Collaboration and CPFR®. In addition, you have to drive down to the item/shelf and back up to strategic demand planning to truly create a successful Sales and Operations Plan.

There are many more advance steps to be taken in merchandizing and pricing, category management optimizations, etc. But first you have to get the ABCs in place.

When we talk of exponential benefits to be realized, the industry leaders and pioneers are the ones increasing sales or market share while reducing COGS and are continuing to maintain or widen their competitive advantage. Don’t sit on the fence—if you need help get it—because the gap continues to widen.

 

 

©2003 ChainLink Research, Inc.