June 2005 | Commentary | IT Matters

Expect the Unexpected: 5 Steps for Retail Supply Chain Preparedness

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Unpredictable consumers, demand for low prices, and an ever-quickening pace make the retail/consumer package goods supply chain difficult on a good day. Large-scale interruptions—such as the recent dock workers' strike and overactive hurricane season—further exacerbate an already challenging landscape.

While many interruptions are unavoidable, manufacturers and retailers can—and should—take steps to create more agile supply chains. This not only mitigates the impact when disaster strikes, but also helps companies respond more effectively to day-to-day fluctuations that routinely affect revenue and service.

From Minor Hiccups to Major Events

Fortunately, hurricanes and worker strikes don't occur every day. What does happen every day, however, are small-scale events—new promotions, unanticipated demand, store openings and closings. If not managed properly, these events can cause stock-outs as easily as natural disasters can.

In today's competitive environment, however, it is often not enough for retailers to mitigate the impact of these daily issues. Consumer goods suppliers must be agile enough to avoid problems altogether. Those that do this well reap the rewards: improved revenue, more effective retail relationships, and loyal consumers. In addition, a supply chain agile enough to handle daily issues is better positioned to succeed when major events arise.

What can manufacturers and retailers do to create a more responsive, agile supply chain? Technology is key. New solutions, including vulnerability planning software, help companies prepare for supply chain continuity in the face of a variety of disruptions.

Here are five steps organizations can take to expect—and be prepared for—the unexpected.

1. Leverage real-time data from internal and external sources. Organizations today are awash in data generated by the many transaction and planning software systems running their supply chains. In addition, manufacturers often receive sales, inventory, transportation, and pricing data from external sources such as retail customers or third-party logistics providers. RFID promises yet another massive data source.

Within all this data lie critical clues to future problems that often go undetected—needles in a massive information haystack. Bringing information together in a timely manner helps retailers uncover issues as they develop. This provides more time—and more available options—to prevent major problems that can wreak havoc on the supply chain.

2. Achieve store-level visibility across your demand network. To meet consumer demand at the store shelf, manufacturers need visibility across thousands of stores and multiple distribution centers to understand exactly where products are selling—and where they are not selling.

With access to real-time, store-level insight on product performance, product managers can make informed decisions to help balance inventory optimally across the network.

In extraordinary circumstances—such as a snowstorm or hurricane—suppliers with effective visibility and an immediate understanding of where products are located can quickly and efficiently move inventory where it is needed most. In these cases, the revenue upside often takes a backseat to the humanitarian need of supplying generators, flashlights, or blankets.

3. Apply business rules to real-time data to identify and manage exceptions. Every retail organization has specific thresholds that, when crossed, create exceptional conditions—impending stock-outs or late orders, for example.

These business rules provide a basis for evaluating the business conditions manifesting themselves in internal and external data. Using this data enables organizations to identify and prioritize the issues that will impact the supply chain.

Further, companies should tap these business rules to formulate the most appropriate responses to impending issues.

4. Understand the impact of your actions. Your team's response to any given situation often impacts other areas of the demand network. By expediting an order to one region, for example, are you jeopardizing orders to another region? Does shifting production schedules affect your team's ability to meet order commitments to your major customers?

Sometimes business conditions or events make it necessary—even appropriate—to "steal from Peter to pay Paul." It is important, however, that organizations not be blind to the impact their actions have on other parts of their demand network.

5. Perform a fact-based causal analysis. Most importantly, organizations must review events and understand why particular issues occurred. Look at the business conditions surrounding each incident, the actions taken, and the effectiveness of the response. Base this analysis on hard facts captured and stored at the time events occurred, rather than on anecdotal evidence from various team members.

By understanding what worked and what didn't, organizations can make necessary adjustments to their supply chains, improving their ability to respond to everyday issues as well as to large-scale disruptions.

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