Dictating demand

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(From Supply Chain Standard, November 2012)

In an omni-channel world supply chain management needs to embrace more than just products, deliveries and the internet.

Once upon a time successful retailing used to be described as “having the right goods for the right customers at the right time”. Central to the model was a product-driven supply chain with buyers and marketeers directing consumer trends while merchandisers made sure that these must-have items were on the shelves when the shoppers were persuaded to buy.

Such product-driven supply chains have long been confined to history to be superseded by various “value chain” or “demand chain” models. Monitoring consumer behaviour and responding rapidly to changing demand became far more important than simply pumping products through the pipeline. Then came “multi-channel”, “cross-channel” and now “omni-channel” with a need for real-time insight into stock availability and “virtual stock pools” so that orders in any channel could be fulfilled from anywhere – be that central warehouse, store or direct from supplier. Some retail IT experts even argued that such a virtual approach would mean an end to conventional allocation and planning systems: after all why agonise about precise stock allocations to every branch when customers could order on their mobiles in-store and have the goods delivered to their home or office within hours?

Renewed interest

The need for real-time stock data has also driven renewed interest in RFID. In the US Macy’s, J C Penney, American Apparel, and Wal-Mart are all rolling out item-level RFID for clothing although UK retailers are rather more discreet about the current spate of pilots. As a recent report from Accenture put it: “Item-level RFID is becoming a competitive differentiator for several leading companies in the retail supply chain. Chain-wide roll-outs by a number of North America’s largest clothing retailers are a clear sign that this technology will soon be broadly adopted by the industry.”

Knowing precisely how much product is where at any time may be vital for today’s omni-channel retailers but it is not the whole solution. In those far off product-driven days, demand was often led by clever marketing: convince the people what they must have and they’ll buy, ran the theory. Today it is very different. Instead of driving demand retailers now need to respond to what consumers decide they want – and anticipating that and using the information to guide the supply chain can be challenging. Companies like TXT e-Solutions were early in the field, developing technology that could model potential sales within hours of the launch of a new line so improving both replenishment and mark-down optimisation.

Simple pragmatism also helped: finding out what Delia or Jamie were planning to cook several days in advance, ensured that supermarket shelves were suitably well-stocked with such delicacies as rose harissa or mirin to meet demand on the morning after the TV programme. Predicting demand is no longer quite so simple: in an age where Twitter and Facebook are the dominant preoccupations for millions, understanding social networking and how it can influence the supply chain presents new challenges.

Tesco, for example, is one of several companies working with SAS on real-time analysis of tweets: not only is it vital for businesses to identify and respond to negative messages quickly but such social input can also be an indicator of emerging trends. All those “likes” on Facebook are also starting to help fashion companies plan their ranges and spot the winners early in the seasonal cycle, so improving replenishment.

However, Lora Cecere, ex-AMR and founder of Supply Chain Insights, points out that social networking is generally the preoccupation of digital or  e-commerce marketing team rather than the main marketing group and is “worlds apart from the supply chain team” and – as she adds “the digital marketing team is often siloed”. The result is that the sort of insights which real-time analysis of social sites can give – the rapid feedback on stock-outs, emerging trends, poorly performing product, inefficient carriers or whatever – is far removed from supply chain planners and logistics managers operating at the coal face.

Social networking

For many of us (and I include myself in this category) the fascination of social networking remains something of a mystery – who has the time or inclination to keep tweeting all day I wonder? But for many millions of consumers it is becoming a key driver for shopping behaviour, product selection and demand. Countless thousands want to buy what their peer group recommends and are guided by the “likes” of their Facebook “friends”. As such, monitoring social signals will become an important aspect of supply chain management – a vital tool to improve service, customer experience, or product performance or to guide product development and range planning.

Retailers have always paid lip-service to the notion that “the customer is king” – the difference now is that rather than being some sort of constitutional monarch or powerless figurehead, the customer really is running the show.

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