Ask consumers for their pet shopping hate and the odds are that most of them will cite product availability: all those stockouts that result in bad tempers, abandoned trolleys and significant loss of both goodwill and sales. Making sure that the right goods reach the right store at the right time is a very major retail preoccupation – and one that the IT vendors are eager to exploit.
To that need for better demand forecasting and replenishment, add global sourcing and all the complexities of doing business with China, as well as the need to optimise staffing and the looming impact of global data synchronisation and RFID… so it is small wonder that supply chain management (SCM) technology is currently preoccupying both retailers and IT vendors alike.
AMR Research surveyed 200 potential SCM systems buyers this summer and found that 47 per cent expected to increase spending this year and only six per cent predicting a decline in spend. According to AMR analysts, Lora Cecere and Wendy Davis, the top four SCM business drivers for spending are: understanding and managing consumer demand; optimising over-all supply chain costs; improving and optimising product introductions; and managing and optimising an extended supply network.
‘In 2003 the priorities were efficiency, speed and cost,’ says AMR research director, Cecere, ‘now SCM processes have expanded into commercial and research & development processes. SCM is now a wider business initiative and this is a major shift.’
Among specific major planned functional spending areas, suggests AMR, are: supply chain visibility; demand visibility and forecasting; RFID; supply chain performance analytics; and sales and operations planning (S&OP).
Ryan Kraudel, global product marketing manager at GXS agrees: ‘There is a big demand for visibility tools,’ he says, ‘both in tracking shipments and for visibility from a transaction perspective from point of sale and with advanced shipping notices as part of total order lifecycle visibility.’
Focusing solely on retail SCM views, UK market analysts Nemea, asked – also during the summer – retail supply chain vendors to rank activities in order of importance, based largely on the interests of their retail customers (see table above). UK retailers are generally considered as having highly sophisticated and mature supply chain systems but Nemea raises concerns that they may be missing out on some of the more recent trends.
‘Most retailers are still experiencing the old problems of out-of-stock, unsold inventory and unprocessed returns with billions of pounds in lost profits as a result,’ says Asa Back, research consultant at Nemea. ‘According to our report one reason for the mismatch in supply and demand is that many retailers have concentrated on areas such as analysing and forecasting and have not balanced that work with sufficient improvements in areas where the consumer makes the decision to buy the product.’
Interestingly, while analysing and forecasting came at the top of the list, sourcing was way down second from bottom. As the report concludes, while improvements in sourcing can have a substantial impact on corporate performance, the majority of retailers – according to the IT vendors – ‘have yet to appreciate the significance of this strategic asset’.
Interestingly, too, the more successful retailers are putting sourcing centre stage. Tesco, for example, has just signed up Eqos to develop a platform for non-food global sourcing. Eqos already supplies a similar application to Best Buy in the US to manage its sourcing activities in China. ‘The new system is targeted to cut lead times allowing us to order earlier or delay buying decisions dependent on changes in our business,’ says John Hoerner, ceo for clothing at Tesco Stores. ‘It will also support better cost negotiations and provide us with additional flexibility to be more responsive to our customers, especially in fast changing product areas.’
Better integration needed
The need for better integration throughout the supply chain is widely acknowledged with visibility high on AMR’s buyers’ wish list. Traditionally, however, SCM is divided into planning and execution but as the need for greater optimisation activity grows and extended supply chains become more complex, the boundaries are blurring.
As elsewhere in IT it’s an area where merger and acquisition activity is accelerating – in part to provide the range of functionality now regarded as vital. In the past month Oracle has acquired G-Log which – with its previous purchases of Retek and Profitlogic – now makes it a very significant player in the SCM space, while Manhattan has bought Evant and will develop a fully integrated supply chain planning and execution model for the first time.
And that’s only in the past month or so. Add SAS’s acquisition of Marketmax, Torex’s of Alphameric/Compass, Lawson’s of Numbercraft, Sterling Commerce’s of Yantra – and so on – and one can see that supply chain systems are becoming increasingly complex and comprehensive. Not all, of course, have been totally successful: EXE’s acquisition by SSA, for example, has seen significant decline in its profile as the new owners do not primarily target the retail market.
SAP has also been hitting the headlines with its increased focus on retail by the purchase of store systems specialist Triversity. It has also upped its SCM profile with the launch of new forecast and replenishment tools and product introduction systems, improved its warehouse management offer, and entered the world of retail revenue management. Central to the model is the idea of a consistent master data file providing one single source for all corporate information and a consistent single version of the truth. As Richard Mills, SAP’s retail industry principal in the UK said just a week or so before the Triversity deal was announced. ‘SAP now does everything for retailers apart from EPoS and planograms.’ The Triversity purchase leaves just planograms out in the cold.
Arch rival, Oracle, is also aiming at a complete retail offering. ‘We talk about systems for “concept to market”,’ says Gladys Lau, senior director of retail industry at Oracle Retail. ‘That means everything from the initial product idea right through production and shipping to the shop floor and sales, and we’re getting pretty close to having that.’
Oracle is currently integrating the Retek applications into its core suite, rationalising the offer where there is any overlap as in warehouse management. Profitlogic is next on the list with any overlap between its optimisation tools and Retek’s due to be eliminated later this year. G-Log, however, adds something entirely new to the offer with its highly regarded transportation management systems providing a significant enhancement of its supply chain execution offering.
‘So much of the retail market is moving off-shore that supply chain visibility is essential,’ says Lau. ‘We have to be pretty smart about offering retail customers the tools that they need. That was behind the acquisition of Profitlogic and that’s why we added G-Log.’
Integration is also a key driver for M&A: ‘Customers want an integrated offer,’ says Allen Scott, UK md for Manhattan Associates, ‘and it is a logical extension to combine forecast and planning with supply chain execution. There is a good fit with Evant and we already have several customers in common.’
Over the next 12-18 months Manhattan will fully merge Evant’s sophisticated forecasting and modelling tools with its extensive supply chain suites that cover warehouse and transportation management, trading partner management, reverse logistics, RFID and a host of other execution functions.
‘A successful integration of the two will significantly enhance Manhattan’s position among retailers seeking more of a one-stop shop for their supply chain planning and execution needs,’ says Alexi Sarnevitz, research director at AMR Research. ‘Manhattan does not face any significant rationalisation or migration issues and architecture is not an issue either because both suites are moving toward a J2EE architecture from similar legacy platforms.’
Catalyst is another focusing on combining its traditional ‘execution’ warehouse management application with new planning tools. ‘We’re also looking to grow by acquisition,’ says vp sales and marketing for EMEA, Steve Barker. ‘Customers do not want a mishmash of disparate systems they want integrated offers.’
Catalyst is currently developing planning tools – notably in the demand forecasting area – and expects o gradually extend into merchandise management. It has been working very closely with SAP as an implementer as well as offering extensions to SAP’s core functionality and worked with the company at The Body Shop. ‘We want to have the planning piece in place by the end of the year,’ says Barker.
It is a similar story at Aldata: ‘We’re mainly in the execution space but we have always done planning and forecasting tools as well,’ says business development manager Pierson Broome. ‘We’re now seeing more pressure to integrate planning at the store level to optimise planning for store orders and extend the forecast horizon.’
Aldata is currently combining its GOLD Forecast and Topase tool – which forecasts inbound shipment requirements to improve goods handling and scheduling – to create a single holistic solution.
Combining execution and planning may seem attractive, but is not always easy. TXT – a leader in the advanced planning space – is doubtful about how many retailers really are ready to grasp this nettle. ‘That vision of a totally integrated supply chain suite is right,’ says TXT’s UK sales and consulting managed Richard Nicholas, ‘but the challenge is implementation. Retailers need to look at this sort of project as a three year plan starting with merchandise and budgetary controls and then moving on to automated assortment planning and other sophisticated tools as you wean merchandisers away from spreadsheets. We’re happy to integrate with a wide variety of execution tools as they really are not so critical as planning.’
Merging planning and execution is just one preoccupation for SCM vendors selling to retail. Others attributes moving to centre stage are workforce optimisation tools, global data synchronisation (GDS) and – inevitably RFID.
In many ways all three are aspects of the need to optimise supply chain costs: workforce management tools from the likes of Catalyst and Red Prairie are designed to increase productivity and reduce errors; GDS – although regarded by some as a sledgehammer to crack a nut – is a vital step in streamlining inter-enterprise communications so reducing costly errors and improving sourcing efficiencies; while RFID – for all the misleading hype – has the potential to ultimately cut costs and enhance efficiency.
Although rollouts are still limited, retailers like Marks & Spencer are already demonstrating real benefits of RFID. BT’s Auto-ID Services is managing both the data flows for M&S’s item level garment trial and the extension of its reusable food tray labelling scheme to more suppliers. ‘Around 50 per cent of suppliers are now reading and writing to the tags,’ says Eddie Dodds, CTO for BT Auto-ID Services. ‘Information such as destination store and use-by dates are thus being updated and tracked.’
M&S hopes to complete roll-out to the 105 chilled and fresh produce suppliers using the trays by the end of this year. ‘We’re seeing a lot of interest in the scheme from other retailers,’ adds Dodds, ‘especially for hybrid solutions that will include linear, 2-D and RFID labels on each tray to give maximum flexibility for suppliers.’
Microlise is also piloting RFID developments with a number of retailers – who all prefer to remain anonymous for fear of losing competitive advantage if the trials prove as successful as they hope. It has launched a ‘trailer portal’ which reads data from RFID-tagged roll cages as they move on and off lorries, so avoiding the need to install RFID technology at all loading doors – thus cutting costs and improving system flexibility.
‘The system is 100 per cent reliable,’ says product manager for RFID Lee Nixon, ‘and it also solves the problem of radio interference at neighbouring dock doors which is a potential hazard with Gen2 systems under the current standards.’
Cost is around e7,500 per trailer and although the system was only formally launched in August there is already considerable interest both from third party logistics providers and retailers.
Used in this way RFID can not only improve supply chain visibility and delivery accuracy, but by geofencing routes and combining with GPS can also help to improve security, track and trace, and driver monitoring. Unisto, VSC and Maple Group all have similar RFID-based vehicle tracking and security projects underway with such retailers as Tesco, Nisa Today and Midland Co-op and it’s an area where we can expect roll-out announcements in coming months.
RFID is also seen – long term – as bringing real benefit to food supply chains with complete track and trace capability for improved product recall and sourcing information for customers in line with new EU food laws. ‘RFID was overhyped here,’ says Pierson Broome at Aldata, ‘but interest is growing especially in the pharmaceutical sector and for brand protection.’
Aldata’s GOLD Trace system – recently adopted by Grand Marnier and Group Coop in France – effectively links suppliers with point of sale providing the ability to track all food constituents right through the supply chain.
Many – including standards organisation GS1 – argue that global data synchronisation is a necessary prerequisite to use of RFID in the supply chain and companies like Sterling Commerce, GXS and Kewill are all active in this space.
GS1’s national datapool initiative – hosted by GXS which is also providing the technology for similar datapools in 18 other countries including Slovakia, Russia, and a group of Mediterranean countries with operations based in Malta – was largely focused on food and grocery, but with non-food becoming such a major preoccupation for such early GDS enthusiasts as Tesco, Asda WalMart and Makro (part of the Metro Group) other categories are being added.
‘Any company which operates in more than one country has to have a global way of doing business,’ says Steve Coussins, chief executive of GS1UK. ‘We’re already working on non-food product classification as the big multinational retailers have these lines very much in their sights.’
Datapool to be extended
Over the next two years Coussins expects the scope of the national datapool to be extended to cosmetics, DIY, electrical goods, health care, pharmaceutical, apparel and fashion – amongst others. ‘In fact,’ he adds, ‘there is very little we don’t expect to be covered.’
Others, however, are already active in these areas. Kewill is currently working with Inovis to extend use of its product catalogue in Europe. Inovis Catalogue is essentially the QRS application which Inovis bought last year and was first implemented in the UK some three years ago by Selfridges. Kewill is now working with a group of retailers and suppliers to develop a viable community which can benefit from the effort needed to input and use standard product attribute files.
The Inovis catalogue can handle up to 500 attributes for each product and includes text, images, prices, and multiple product names. Currently the GS1 model has 153 standard attributes, to be extended to 222 by the end of this month.
Alongside GDS are new product information management (PIM) developments which will provide the link between the planned network of standard datapools and internal company product developments. As products change the PIM system identifies necessary data changes and updates systems both internally, in datapools, and with trading partners. ‘PIM is still regarded as slightly esoteric,’ says Spencer Marlow, European marketing manager for retail and CPG at Sterling Commerce, ‘but companies like Sainsbury are already starting end-toend integration projects that increase PIM awareness.’
Sterling is currently offering a ‘hosted data synchronisation’ service which can help suppliers complete the sometimes confusing number of attributes demanded in the GS1 standard GDS model. ‘The learning curve is quite steep,’ adds Marlow, ‘and it can take quite some time to complete all the attribute fields and understand what is needed.’
A few years ago SCM in retail may have seemed like a done deal with all those likely to implement merchandise management systems (MMS), WMS, or vehicle routing tools having done so. Today, with GDS, RFID, advanced planning tools and visibility for global sourcing still in their infancies, SCM in retailing looks like devouring significant investment for quite some time to come.