Consumers are driving inventory management into the spotlight. Alex Leonards looks at how the process is changing…
Driven by the heightened influence of consumer demand over the logistics process, retailers and manufacturers are increasingly exploiting the supply chain as a source of competitive advantage. Inventory management now plays a huge role in harnessing that advantage.
“The modern consumer wants the option to choose how and when they will buy and how they pay for and receive their purchases,” says Darren Wildman of Apex Supply Chain Technologies. “This requires a new level of retailer flexibility, which fails or succeeds based on the accuracy of inventory data.”
Inventory management is certainly making an entrance, with new systems and strategies finding their way further into the supply chain. “WMS is moving beyond the warehouse to provide and support a growing number of business functions, such as delivery confirmations, and customer facing systems, like stock availability to e-commerce platforms,” says Alex Mills of Chess Logistics. “WMS are also supporting an increasingly complex set of multichannel supply-chain functions.”
Eric Carter, solutions architect at Indigo Software, thinks that there is a definite blurring of the lines between the traditional functionality users would expect to find in an inventory management system and what they can get from a standard WMS.
“In the past, the inventory management system provided as a standard module within an ERP would have recorded details of numbers of stock items available, for example, but would not have included any further information on, for example, the location of items in the warehouse, specific picking instructions or any provenance information,” he says. “In the past pickers working from a pick note generated by an inventory management system would be expected to have a high degree of warehouse knowledge, to be able to find items and rotate the stock they were handling properly.”
“This creates problems because as a business grows in size, or if the order profiles change as a result of e-commerce so pickers are expected to process lots of individual items compared with the traditional bulk replenishment orders, or as customer expectations to provide traceability data change, this way of working isn’t sustainable.”
According to Carter, inventory management systems incorporating more functionality have their pros and cons for the user. “While users can expect better functionality from some systems, this also demonstrates the distinction between the capabilities of these two systems, because an inventory management system tends not to be able to cope with the levels of data complexity that a WMS can,” says Carter.
“For instance, businesses have collected far more data than they can actually use, so they need systems that can cut through this and effectively strip back the layers of the onion, to get at the most relevant information that actually supports their decision making.”
Mohit Dubey, senior director product marketing at E2open, says that shifting consumer behaviour is changing how retail companies are engaging with the end user. Consumers demand smaller packages, which drive costs up. But, he says, it’s the companies that are able to keep costs down that are rewarded.
“Those changes [to retail behaviour] are significant enough to ripple upstream,” he says. “What’s happening is, companies more and more upstream are having to enable some of those capabilities [to drive costs down] in their own companies as opposed to their 3PLs.
“Enabling the manufacturer to direct ship to the consumer in the manner they expect.”
The changing role of the supplier, specifically the movement of inventory back down the supply chain to the originator, is something Indigo’s Eric Carter sees as an increasingly regular trend. “Customers are typically expecting their suppliers to hold back stock deliveries for as long as possible, to avoid them having the financial outlay of having to purchase and store stock items in their own warehouses,” says Carter. “Instead, they want to have delivery at the last minute, when items are needed for sale.
“This increases the complexity of inventory management along the supply chain for all stakeholders.”
Jason Shorrock, vice president retail strategy EMEA at JDA, agrees that inventory management is spreading out across the supply chain. He says that many companies have, in the past, attempted to handle inventory management as a stand-alone initiative.
“This is no longer a viable option due to the increasing complexity of global supply chains,” says Shorrock. “Instead of focusing on short-term results, companies are now aligning day to-day inventory plans with top-level goals on an on-going basis, turning inventory management into a powerful strategic advantage in a challenging economic climate.”
Inventory management systems can offer users a lot more information than they once did. “Today’s technology can manage inventory dependent on consumption patterns, volume, revenue, margin, cost-to-serve, product maturity, channels, criticality, velocity and other key attributes,” says Shorrock.
Historically, the ability to identify exactly where a product is in the supply chain seemed impossible. But nowadays, it’s essential.
Nigel Rouch, IT and project director at XPO Logistics, says that the ability to pass information much quicker is more and more achievable. “Even five to six years ago, a lot of 3PLs were giving information out twice a day; it’s now much more about the end user being able to see inventory, so they have the ability to order what they want,” he says.
Rouch says this is being driven mainly by next day delivery, which in turn maximises the accuracy of inventory systems.
“We’ve got to be slick these days,” says Rouch. “It’s more about the functionality and using it in a better way.
“Historically, the process took two, three, four weeks – now it’s got to be much slicker and quicker – you have to have the processes in place.
“You’re putting as much investment in as out.”
XPO has a location in France where it has invested in a pilot that uses heat map technology similar to that used for football matches. “You can focus on where you dropped the last pallet and map to where the pallet is dropped,” says Rouch. “It’s wasted time looking for the pallet – we now have more ability to know where the product is, and go and find it.”
E2open’s Mohit Dubey agrees that facilitating track and trace is crucial. “The ability to keep track of everything that is happening at every level as transactions come in,” says Dubey. “Then you’re able to track how it’s being handled by the 3PLs, customers, on the port, on a truck.
“Not just on the distribution side of things, but also upstream – tying these two areas together, and processing the steps of that raw material.”
He says that one of the most valuable parts of this process is the quality testing that goes into these stages, including gaining information like the origin, and whether or not products are fair-trade.
E2open has been looking at this track and trace capability as a database that can be queried. “What is possible now, because it’s not just a database, is that you can actually do something about it,” says Dubey. “A repository as well as an actionable system; raising alerts in real time and tying it back to your ERP systems.”
Dubey says that pharmaceutical companies are starting to adopt this kind of detailed traceability. “However, these capabilities are relevant for all consumer facing industries – not just life sciences, food & beverage and cosmetics, but even high-tech and consumer packaged goods, where product defects can become health-and-safety issues for end consumers,” says Dubey. “This is a matter for the end-to-end supply chain, not just the logistics and material handling functions.”
Uwe Hennig, chief executive of Detego, says that users are clearly looking for real-time insights. “The time for out-dated reports is over,” says Hennig. “People are increasingly requesting real-time analytics across the whole chain to better manage their businesses.
“We’re also seeing a shift towards more item-level and RFID inventory management systems, thanks to the falling cost of tags and near 100 per cent inventory accuracy.”
It’s not only the businesses themselves that are looking for visibility in the supply chain.
“The level of data being recorded about inventory items is growing exponentially, as customers expect greater awareness of the provenance of the items they buy – whether that’s food, clothing, cosmetic items – the trend affects all consumer goods,” says Indigo’s Eric Carter. “Regardless of whether they are for B2C or B2B use, brands cannot afford any reputation damage.
“Everything people buy, including product components and raw materials, needs to be fully traceable.”
For the future of inventory management, chief executive of Culina Group Thomas van Mourik sees the Internet of Things (IoT) playing a key role.
“Speed of inventory tracking and monitoring, and centralised real-time stock level and replenishment management,” says van Mourik. “There is the expansion of the use of Radio Frequency Identification (RFID) as a generic medium for inventory management to prevent over or under stocking, to ensuring stock security and minimise pilferage, to ensure quality control, and out of stock situations.
“There is the evolution of cloud-based inventory management systems, offering flexibility and scalability. Mobile and tablet devices are also being used for inventory management.”
He says that staff collecting, analysing and taking proactive measures in inventory management is happening more readily with the help of mobile applications. “Then there is the introduction of wearable technologies which are already being used within Culina Group to provide added value client support,” adds van Mourik.
JDA’s Jason Shorrock predicts that in the longer term, the industry will see developments within 3D printing, end-to-end sensing (using IoT) and prescriptive response (using artificial intelligence). “These developments will help retailers to run an incredibly agile, lean and cost effective supply chain and inventory model,” he says.
XPO sees an exciting time ahead with technology being the big differentiator for 3PLs. “The industry is starting to understand the art of the possible – looking at newer technology,” says XPO’s Nigel Rouch. “Looking at AI to push the boundaries – it’s not traditional for logistics – but it’s had to become more innovative.”
Predictive requisitioning is something that SAP Ariba’s Tony Harris also believes will become a reality. “Stock outs will become a thing of the past as artificial intelligence powered bots mine historical transaction data to identify items that need to be ordered and unless directed otherwise, automatically purchase them in line with company policies before supply gets low,” he says. “ Machines will analyse billions of financial transactions alongside the historical and real-time purchasing data and within minutes identify changes in buying patterns or pricing trends.
“Armed with this intelligence, buyers can more accurately plan and forecast and drive optimal business outcomes.”
However Syncron’s Gill Devine says that the adoption of AI into inventory management has been fairly snail-paced. “Predictive analytics and IoT are phrases that are tossed around frequently, but many manufacturers are still wondering how to incorporate them into their business practices,” she says. “These emerging technologies enable real-time decision-making and forethought on both strategy and performance, and is therefore the next big stage we’ll see incorporated into supply chain business intelligence. Adoption to this point has been slow.
“Nevertheless, predictive analytics will go mainstream in the supply chain, particularly after-sales over the next several years. Predictive analytics and IoT will play a key role as pre-emptive maintenance becomes more critical to manufacturers’ success.”
Collaboration is key
Tony Harris, general manager at SAP Ariba, says that supply chains are becoming more global, complex and riskier than ever.
“From natural disasters and economic volatility to human trafficking and geopolitical events, businesses are faced with a number of challenges on a daily basis that impact their ability to successfully manage inventory,” says Harris. “They are increasingly recognising that to overcome them, they must be more collaborative with their trading partners across multiple processes, systems and geographies.”
According to him, this is influencing companies to turn to business networks.
“Just like the social networks we use to manage our personal connections and activities, business networks provide a single place where companies can manage their trading relationships and activities,” he says. “More and more companies are now using these collaborative networks to work together on orders, confirmations, and scheduling agreement releases to advance ship and goods receipts notices, financing and invoices.”
Harris says that these collaborative groups can also offer insights and intelligence into how to identify risk in the supply chain. “Many are beginning to leverage this data to drive a more predictive approach to inventory management,” he says.
Beyond these business networks, supply chains are also trying to create more connectivity and collaboration between all parties involved in the logistics process, from start to finish. “Supply chain companies want to create seamless information flows to exchange information with partners, suppliers and customers,” says Alex Mills, Chess Logistics. “But linking inventory management and WMS to other applications can result in increased technical complexity, which is undesirable.”
A single view
A “single view” trend in inventory management is being driven by the growing challenge of next and same day delivery, according to Jonathon Bellwood, founder & chief executive of Peoplevox. He says that these delivery options are creating demand from retailers for single views of all stock.
“The major benefit of the single view is being able to see and therefore sell more items – more easily and quickly,” says Bellwood. “But the risk here is selling out of stock, or continuing to sell stock you no longer have, and have not ensured a sufficient buffer is in place.”
He says that brands that only have a few SKUs are better placed than those larger retailers with multiple SKUs and a large turnover of items.
“The smaller and medium size stores would very much like to adopt the single view approach to inventory management but will often find obstacles in their paths – such as not having enough stock room/warehouse personnel to see and track what’s where, or the financial clout to negotiate favourable terms with carriers, who will understandably prefer making large collections from strategically placed warehouses – rather than lots of small ones from hard to get to premises in the middle of far flung towns and villages,” says Bellwood. “It’s a catch 22 which is tough to get out of – for such retail businesses it would be advantageous to go back up the supply chain and arrange to list, view and sell all stock directly from their suppliers’ warehouses – and have them arrange delivery of it.
“This will save on storage space, de-risks forward buying lots of inventory, and saves on distribution costs.”