A vision thing
Written by David Adams
David Adams looks at how retailers can take advantage of inventory control and replenishment software to streamline their processes and better meet customer demand.
During the last recession I worked for a while in a branch of a kitchenware and luxury goods chain. It wasn't a great job and one of the highlights of my day was helping unload deliveries of new stock in the basement. Part of the reason I enjoyed this, other than that it was easier than failing to sell saucepans upstairs, was that you were never quite sure what would actually turn up, regardless of what the documentation said ought to be there.
You'd like to think most retailers have now mastered at least these basic inventory and replenishment processes. Indeed, the technology now available means they can combine management of those processes with forecasting, merchandising, space planning and other functions. But the most fundamental role of inventory and replenishment management is still to ensure stock gets to where it should be in the supply chain and/or stores. And in these economically trying times it's also essential to be able to do so at minimum cost.
That doesn't mean this is an area where you can afford to cut corners. "Planning systems tend to be regarded as nice-to-haves, things to put on the back burner in the bad times," says David Cahill, business consultant at BT Expedite. "But that's a false economy. When I started out in retail 30 years ago, the first boss I had said: 'If you get the plan right, everything else should fall into place'. That's as true now as ever."
Mark Croxton, managing director at Aldata Solutions, notes that the difference between now and 30 years ago is that if a customer can't find what they want in the store (or online) the result is not a delayed sale but a lost sale. "People are shopping around so much more," he says. "The customer isn't just going to buy a substitute product. In the current climate, ensuring stock is there when the customer comes in is even more important."
Yet while research shows that many retailers understand the importance of this function, it is still frequently denied adequate financial resources. Almost half (47 per cent) of retailers questioned as part of a new report on inventory management by US company Retail Systems Research (RSR), cite the current state of their technical infrastructure as the primary factor holding back performance in this area.
If the budget is available, there's no good reason why this should be the case. "Nowadays we have providers that can position a planning application in the centre of the infrastructure and get it integrated with the rest of the product set, so sales, stocks and performance data all flow into planning applications," says Cahill.
Despite the recession, retailers of all kinds are investigating the potential benefits of such integrated solutions. Aldata's Croxton points to clients including the Midlands Co-op that are integrating availability, inventory and promotions management; to grocery retailers investing in improved inventory management for fresh food; and to work being done by retailers with more specific requirements, like chocolate retailer Thorntons, which deals with huge seasonal peaks in demand around occasions like Valentine's Day or Mother's Day.
More advanced technology also enables retailers to tie inventory and replenishment more closely into assortment planning for individual stores. "Retailers are getting more strategic in the way they plan assortment, given the specific demographics and the geographical location of a store," says Razat Gaurav, SVP customer operations at i2.
But ensuring stock availability in store is still the top priority for many retailers. "On-shelf availability is probably one of the biggest issues in most retailers' boardrooms at the moment," says Alan Braithwaite, chairman of supply chain and logistics specialist LCP Consulting, and visiting professor at the Cranfield School of Management.
Another very useful attribute of a replenishment solution, then, is an ability to measure availability accurately. The problem is that many systems fail to differentiate between goods that have arrived at a store but have not yet made it to the shelf. Famously, Tesco only realised their view of on-shelf availability was inaccurate when they first started picking goods in-store for home delivery of online shopping. Braithwaite believes that a detailed examination of what's happening at shelf level can result in huge cost and efficiency gains for retailers of many different kinds. One metric he and his colleagues have proved is that a one per cent improvement in availability can lead to a six per cent rise in sales.
Meanwhile, the link between replenishment and forecasting has become more important, partly because so many products now need to be transported over long distances, notes Don Brenchley, director of collaborative solutions at JDA. Its client Iceland now uses a single forecast function to drive replenishment in its store and warehouses, helping the retailer manage inventory during the sometimes dramatic leaps in demand for particular products associated with its most aggressive, price-led promotions.
Paul Longshaw, supply manager at Iceland, explains that the retailer is a long-established JDA customer, having used separate warehouse and store replenishment systems for more than ten years before a decision was made two years ago to bring them closer together. "We got the two systems talking to each other, so really we're now only looking after one forecast, from the stores."
This has resulted in several useful benefits: "It's time-saving for the planners, because they're only operating one system. It gives them more time to perform more constructive liaisons with
suppliers; it gives them a chance to concentrate on the store forecasts. And overall stockholding is reduced at a depot level, giving us more space in the depot." The solution is now in place across all four of Iceland's UK depots and 678 stores.
Iceland has also started to integrate replenishment and inventory with store and space planning systems. "It gives our replenishment systems a better chance to give the right amount of stock in the store, presented more effectively," says Longshaw.
The need for inventory to serve multiple channels also creates additional complexity. The way a retailer prioritises demand from online channels can become an important way to ensure customer satisfaction. Croxton cites the example of a major grocery retailer working with Aldata that now also has a substantial online business. It treats replenishment of the online store as if it were the most important of its conventional stores, because, as Croxton points out: "a customer order is more important than
a store order, because you can disappoint an online customer very easily."
Braithwaite takes that point a little further. "The promise you make to an internet customer is more important than the promise you make to a customer in the store," he says. "If a product is not in the store then most of the time the customer doesn't know it's missing. Whereas on a website, if you think you've ordered something and then you find it isn't there, boy do you get cross!"
Looking back up the supply chain, there's one more obvious, if in some cases intimidatingly complex, step technology allows retailers to take: delegating responsibility for more of the replenishment process to wholesalers and manufacturers. I2's Gaurav says a growing number of retailers now share PoS information and other data with manufacturers to increase supply chain efficiency. The trend is particularly visible in the FMCG and consumer electronics sectors.
Another technology company supporting retailers in this area is B2B integration and supply chain technology specialist Wesupply. In April, it announced a deal with Sainsbury's and IBM to bring 4,000 of the retailer's suppliers onto a consolidated platform, run as an outsourced service that eases the exchange of orders, shipping information and invoices as products move through the supply chain.
To some extent this kind of collaborative arrangement depends on an entirely untechnical factor. "It boils down to how much confidence you can place in your suppliers," says Anthony Payne, vice president of marketing at WeSupply. He admits that some retailers are put off by the potential risks associated with delegating responsibility for large parts of the replenishment process to suppliers. "But there are forward-thinking retailers that are doing that," he adds. "Tesco.com's stock is all supplied directly by the suppliers."
Despite all the things these technologies can let retailers do, Payne says some remain sceptical about the principle of reducing inventory. "Their attitude is: 'I don't care how much it's costing, because I'm going to keep the customer happy," he explains. "But you don't have to compromise customer service. It's about visibility: you can see goods in transit, can see how long it takes for things to arrive."
That would certainly have helped my old employers. It's clear that retailers with the vision to invest in improving replenishment processes can then finely tune the balance between the costs and benefits of inventory - just as we pass through a point in the economic cycle when doing just that is so important.