Reaching Out

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When retail software specialist, JDA bought Manugistics last year not a few eyebrows were raised. Not only was Manugistics as big as JDA, but its supply chain offerings had attracted a sizable clutch of non-retail customers. Travel, defence, aerospace, government – all had bought into Manugistics’ vision.

As well as taking JDA into new markets, the acquisition brought a slick Java-based solution on which JDA is now basing its new enterprise architecture. The acquisition, argues JDA’s chief executive Hamish Brewer, also fits well with the company’s target market of the extended retail supply chain, an expression that Wal-Mart also favours.

‘Consumers are driving decisions up the supply chain,’ says Brewer. ‘Demand at the shelf impacts decisions right back to raw materials suppliers and the extended retail supply chain is now a widely used description in the US.’

Cost cutting and service
With rising costs, deflationary prices and mature consumer markets, manufacturers in many sectors are struggling to maintain sales volumes and margins. Those costs that could easily be taken out of the supply chain were cut years ago and further cost cutting is now likely to affect service. Retailers have managed to push stock holdings further up the supply chain to improve their own efficiencies so that manufacturers, with little left to cut except safety stocks, can find it harder to meet those just in time orders.

Wal-Mart, for example, calculates that while 25 per cent of stock-outs can be attributed to the fact that the products have failed to make it out of the back room to the store display shelf and 47 per cent are attributable to its own order and forecasting problems, some 28 per cent are related to upstream issues involving suppliers. 

As Ron Moser, head of RFID strategies at Wal-Mart readily admits, stock-outs distort sales figures which in turn impact demand forecasts.

‘If the goods aren’t on the shelf we don’t make the sales,’ he says. ‘If we don’t sell the item, forecasts of demand are lower so the items aren’t reordered. The result is a product death spiral.’

Not surprising then that many retailers put reducing stock-outs at the top of their to do lists. It’s been a key driver for Wal-Mart’s RFID project, a solution which for that company at least has produced quantifiable benefits with an average 16 per cent reduction in stock-outs. The need to cut stock-outs is also encouraging greater collaboration, sharing vital performance data with those ‘extended suppliers’.

‘How many retailers are really satisfied with their suppliers’ deliveries?’ asks Hamish Brewer. ‘Driving out costs has reduced safety stocks and service levels. Manufacturers need better access to sales and forecast data so that they can be more proactive in their planning and product development.’ Extended retail supply chains are thus not just joined up product pipelines but seamless information flows that take data from the shopping trolley and feed it back, in real time or near real time, to manufacturers to help production and delivery scheduling. Retailers and their major suppliers have long paid lip service to collaborative planning, forecasting and replenishment, but examples of successful and sustained projects remain few and far between.

Today’s technology makes such data sharing much easier. RFID can provide visibility throughout the supply chain, service oriented architecture (SOA) makes it a great deal easier for IT systems to talk to each other, global data synchronisation – for all its problems – will eventually standardise and simplify the sharing of product attribute data.

Rather more than 10 years ago, research analysts Forrester used to talk about having a trash can that could read the bar codes on products thrown away and automatically reorder a replacement. It hasn’t happened – yet, but with around 10 per cent of UK retails sales now made via the internet and with printable electronics set to transform product tracking and communications it is one futuristic concept that might be creeping a little closer to reality.

Dr Penelope Ody is a regular columist iwth Supply Chain Standard and is a Retail Market Specialist

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