Retail Roundup: The End of the Supply Chain

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It's all about what happens at the cash register. So how do retailers and their partners efficiently match demand to supply with good customer service, and still ring up profits? Eleven industry observers offer their perspective on what retailers can do to survive and prosper.

Ever try to fill a bucket from a fast moving boat? Then you know how retailers feel in today's business climate. Retailers are struggling with a never-ending torrent of challenges such as increasingly fierce competition, developing multiple distribution channels, seemingly unending successive iterations of IT solutions, standards compliance, globalization—oh, and by the way, a bad economy.

To help divine paths retailers can follow to find supply chain nirvana, Inbound Logistics tapped 11 gurus for their perspectives. Their answers are far-ranging and concern the systems and processes retailers can put in place to cope in this business environment. These IT experts serve retailers both large and small, and their insight and candor is refreshing.

Question 1: From your perspective, what processes or systems being implemented today offer retailers the best return on investment?

"Retailers will get the best ROI from any system that helps them better match demand to supply. For small, independent retailers, the greatest benefits come from systems that are fairly straightforward—systems that help them move from an unautomated to an automated inventory system, for instance. Here's the problem. When small retailers use an electronic cash register, inventory management means a clipboard and eyeballs, running around tracking what inventory is and isn't in stock, and doing daily or weekly manual updates. Smaller retailers need to have the same types of world-class inventory control that larger retailers have. Small retailers need automated systems that allow them to set up their inventory and receive products. When products arrive from suppliers, they go into inventory. Retailers need a system that keeps track as product is sold out the front door, and that provides cycle counts, so they know when inventory is going out the back door, too. They need good decision support on reordering product as the cycle speeds up and slows down. Any system that enables retailers to reduce overstocks and inventory because they have visibility gives the best return on investment."

—Brendan O'Meara, Microsoft

"Two things offer retailers the best ROI: running a hybrid flow distribution operation, and better demand planning and forecasting. Hybrid flow operations give the DC the ability to flow product from receipt directly to outbound shipping lanes or directly into the truck, thereby eliminating the need to perform traditional pick-and-pack distribution. Additionally, the hybrid flow process provides the flexibility to store and pick merchandise should the retailer need to keep some inventory on hand. Retailers can save significant time and money and gain competitive advantage by using less inventory storage space. They also reduce labor costs through fewer people handling the merchandise. And, products get to the stores faster, saving the cost of owning the inventory for a longer period.

As for return on investment through systems improvement, a prevalent initiative among retailers is better demand planning and forecasting. Retailers want the ability to understand and predict trends in product demand to regional, climactic, and cultural levels. Having the capability to perform this analysis benefits retailers in multiple ways—namely, launching more pointed marketing campaigns, shifting non-salable product to stores that have more success in that product line, increasing customer satisfaction by supplying the products they want, and relieving back-stock levels in the distribution center."

—Mike Edwards, Catalyst International

"What provides retailers with the most ROI? Global data synchronization. Every exciting thing that retailers want to do is built on the foundation of data synchronization. If they want to get more sophisticated in their supply chain, if they want to do collaborative planning and forecasting, then they need common data. Industries where demand is harder to predict and easier to fulfill lend themselves more to synchronization. In apparel, for instance, it's very hard to do collaborative forecasting and planning on a grand scale because lead times are so short. Demand can uptick instantly and retailers can't do anything about it. Grocery stores, on the other hand, can do something about it if they practice collaborative planning and forecasting. For example, Procter & Gamble has the kind of flexibility built into its supply chain that monitors product promotions closely. If a diaper promotion is going really well, P&G can ship more diapers, and if worse comes to worse, it can make more. It has that kind of supply chain flexibility.

Retailers are so dependent on their supply chain, but traditionally what they get from it is just product. But there is a lot more to bring to the table than just product. Retailers need the flexibility to squeeze every ounce of opportunity out of the supply chain. They can do that if they synchronize data, then collaborate, plan, and execute based on that synchronization."

—John Radko, Global eXchange Services

"The system that helps synchronize product data globally, EPC (Electronic Product Codes), offers retailers the best return on investment. Retailers should act now to comply with the 2005 deadline synchronizing the G10 and GLN data infrastructure. Synchronizing product data globally will drive more value into the retail industry than anything we've seen in the last few years."

—Christopher Sellars, EDS

"Any system that can help a retailer get the right product to the shelf offers the best ROI. Many systems purport to give visibility, ensuring the right products get to the demand point. At the end of the day, if retailers cannot do that, there is not going to be a return on investment."

—Gladys Lau, QRS

"Systems that treat retail merchandising with a broader perspective, that provide the ability to cut inventory and increase turns and service levels offers the best ROI. Multi-channel retailers, e-tailers, and retailers who don't have a selection of inventory in the stores need to make sure they have the right products. At the same time, they don't want to be out of stock. It's a real balancing act."

—Jack Harbaugh, Evant

"The best ROI comes from systems that offer retailers advanced planning and collaboration with their trading partners. There is a real opportunity for hard-dollar return on investment because of inventory reduction, and rationalizing stock positions to demand. Beyond inventory savings, statistics show there is actually an increase in revenue resulting from having the right product available when the customer walks in the door."

—Karin Bursa, Logility

"For mid-tier retailers, the best system is one that offers real-time visibility to inbound orders. By leveraging their relationship with key suppliers, retailers can have accurate and immediate visibility into in-transit orders. Once they obtain visibility, retailers can then determine if direct control over their inbound freight would be more effective, or if they should leverage an experienced 3PL to do so on their behalf."

—Kevin Lynch, Nistevo

"Retailers will get the best return on investment from Collaborative Planning, Forecasting and Replenishment (CPFR) systems, a culmination of the connectivity and trust that allows retailers to move into the collaborative space. There are some difficulties with CPFR, however. One is that standards are still developing. Another is that companies still struggle with the collaborative piece within CPFR. They're able to plan, and they're able to gain trust with some of their vendors. But it's the ability to collaborate effectively that will help drive inventories down and improve efficiencies."

—Norman Morissette, Sockeye Solutions

"Optimizing transportation across all modes offers the best return on investment. A focus within that optimization is adaptability—understanding what happens and feeding the results of that analysis back into the system to do better planning the next time around. The system should also allow for real-time adaptive planning. For example, if a retailer communicates a load to a carrier and it is declined, can the system automatically retender that load back out? Traditionally retailers have focused on domestic transportation. But over the last 12 months or so, the retail leaders have been looking at the international market. Optimizing transportation internationally is a totally different perspective.

Retailers shipping globally need to set up a plan that automatically determines every step that needs to happen between shipping from a particular supplier in China, for instance, and final delivery to a distribution center in California. The system should let retailers do this automatically, then select all the transactions and the status messages from the suppliers, the carriers, and the freight forwarders throughout the process, throughout the world. Expanding the same type of transportation optimization controls that retailers have domestically to the international market will offer a good return on investment. "

—Rob Russell, Manugistics

"The best return on investment will come from systems and process improvements that increase supply chain and shelf-level visibility of goods. Compared to huge investments in planning and execution systems, there has been little investment in systems that capture the visibility of assets. Depending upon the particular retailer, RFID-based visibility solutions have been successful in reducing overall inventories, reducing labor, increasing equipment utilization, reducing mistakes (misroutings, mispicks), increasing sales by reducing out-of-stocks, and increasing customer satisfaction."

—Tom Coyle, Matrics

Question 2: What is the toughest challenge facing retailers today and in the next 12 months? What can retailers do to meet that challenge?

"One of the biggest challenges facing small retailers is figuring out how to stay competitive in this economy when they can't always compete on cost. One way is to differentiate themselves by some other means—by providing superior customer service, for example. Small retailers can be more nimble than larger competitors, and establish more intimate relationships with their customers. Because they don't have millions of customers in their database, small retailers can compile a lot more information about each particular customer, allowing them to do simple—but important—things from a customer service standpoint. The challenge is staying competitive when the cost structure is higher and response is primarily customer service oriented. Small retailers don't have large distribution centers, and don't have the ability to buy bulk products, which reduces unit cost. They have to keep much better tabs on their business, and find ways to take cost out. And cost for a small retailer primarily means inventory and labor. Small retailers can meet the challenge by reducing overstock levels through having a better understanding of inventory flow. They need to know reorder points, seasonality, and year-to-year statistics. Small retailers are predisposed to making decisions on a gut level, but they need to make them on a more granular level. Beyond inventory, labor issues are important to retailers of all sizes. They need to be able to staff people in stores based on seasonality and sales volume, and to reduce the amount of manual stockkeeping at the store level. Another way to cut labor costs is by reducing the length of a transaction so that one cash register can do what two had to do previously. Having a responsive system lets retailers speed credit card authorizations, and minimizes the need for dual entry—entering sales information more than once into separate accounting and inventory control systems. Automating that process can reduce labor costs, as well as provide better decision support and better customer service."

—Brendan O'Meara, Microsoft

"In addition to the uncertain economy, retailers will continue to be challenged by the shift from managing single-channel sales and distribution operations to efficiently managing multiple channels. The evolution of this multiple-channel business model will test retailers' enterprise strategies both procedurally and systematically. To meet this challenge, retailers can invest in systems that are flexible. Successful retailers implement systems that are configurable and adjust to business changes without modification, rather than highly customized systems that are costly to maintain. Retail organizations adhering to this business model can adjust their supply chain for multiple-channel sales and distribution without having to change the systems involved. This allows the company to focus on its core business, execute on the new business plan, and manage the transformation without the time, cost, and integration concerns of implementing a new system at the same time."

—Mike Edwards, Catalyst International

"The toughest challenge facing retailers today is taking the first step toward global data synchronization. Once they pass that first step, the internal benefits are so significant that the external benefits start to accrue immediately. The required G10 GLN synchronization is less than two years and two digits away. That means 12 to 18 months implementation time, and the clock is ticking. If your CIO hasn't come to you with a plan and a timeline for G10 GLN compliance with global data synchronization, fire your CIO. Retailers can take steps toward G10 GLN compliance by doing an assessment. Ask questions such as, 'Will I be able to scan 14-character codes?' An item code in a database lives in many different places in many trading partners for many different purposes. Retailers have to understand where their data lives and what the scope and scale of the remediation program will be. They also need to really understand who within their organization owns this compliance issue. Is it the CIO? The CFO? Does it have executive sponsorship? This issue has to become a performance object for someone in a retailer's organization, it has to become a performance criteria in the business model. If retailers don't comply they will see a significant impact on shareholder value and business performance in less than three years."

—Christopher Sellars, EDS

"The toughest challenge for retailers now is selecting software providers who deliver on their promises. Retailers are getting a lot smarter about their selection criteria. They want companies that have a proven record and go beyond just the PowerPoint presentation—they want solutions that work. Retailers need IT partners that have a high-level view of the industry, and can potentially add value with a quick implementation plan.

Retailers can choose the right IT partners by asking the right questions, attending trade shows, or finding a non-biased third-party consultant. They should trust their partners and consultants to help them make the best choices."

—Gladys Lau, QRS

"Retailers face three tough challenges: 1) An underperforming, volatile economy, 2) homegrown systems that don't have agility to operate in that environment, 3) an evolving multi-channel business model. Many retailers use homegrown legacy systems, or highly modified IT packages that don't provide the agility they need to react to changing business environments. Complicating that is the notion of retailers performing in a multi-channel world. A few years ago, multi-channel was meaningless, because the web barely existed. A retailer might have had a web operation that was a small, separate part of the business. Fast forward to today, and you've got communications for web and catalog together in a direct business operation, in many cases representing up to 30 percent of the overall business. Retailers need the ability to leverage their systems and operations to support multiple channels. That puts pressure on the general need to improve systems without putting normal distribution channels at risk. Retailers need to determine, in a logical manner, the business challenges they're trying to solve, and not try to take on everything all at once. Identifying these challenges drives the technology they need to fix those problems. They need to implement new technology using a phased approach, protecting the investment they have in existing systems that work for them. In addition, the retail community should approach their vendors as partners. There is some hard work to be done on both sides. Retailers and vendors should look at how they can work together for mutual reward."

—Jack Harbaugh, Evant

"Ask the great retailers what their biggest challenges are and they'll say managing through the economic recovery, positioning for a rebound, and keeping customer loyalty. It's difficult for retailers to carry their supply chains forward at a time when they're really hard hit. They can drive only so much cost out of the supply chain without breaking people. Different retailers approach this challenge in different ways. In home improvement, for instance, there has been a slight shift in the playing field. One leading home improvement retailer decided to focus on cost efficiency while its competitor went gung-ho marketwise. So you've got all these retailers trying to control costs, yet get better market positions to leverage the rebound when it comes. They're all scared to understock and that's why their inventories are rising. The main thing retailers can do to help their supply chains is to offer suppliers as many options as possible, give them flexibility, and have them comply with standards. If retailers limit their suppliers' flexibility, then they mandate the use of certain suppliers, reducing the odds for success. "

—John Radko, Global eXchange Services

"The toughest challenge for retailers is competition—fierce, fierce competition and the pressure it puts on customer service. In today's economic environment, customers are fickle. They say, 'If I have a brand preference and consistently cannot get that product at your retail location, I'm going elsewhere. And if you do stock my brand, but there's a price advantage at a competitor, I might go there as well.' In the first instance, the retailer fails to serve the customer and the manufacturer loses. In the second instance, the retailer and the manufacturer lose, as the customer goes to another retailer. Not only does the retailer lose that sale, but the sale of all the other items the customer will buy as well. Consumers are very driven by low cost and high service. For retailers, those challenges are tough and real, and will continue in the coming years. Retailers can combat the issue of in-stock presentation by collaborating with their suppliers. They should share information in advance, making sure that promotions are planned and communicated effectively. Retailers must make sure that they're ready for those promotions, in sync with suppliers, especially where a lot of variability exists. Promotions could spike demand by up to 40 percent, depending on the type of product. Any system that helps retailers do advanced planning by collaborating with suppliers, and makes sure that product is not sitting in the DC when the customer wants it, is a good solution."

—Karin Bursa, Logility

"The toughest challenge? Retailers must identify new 'hidden' opportunities to streamline operations and reduce cost. Discovering where these opportunities lie is the challenge. Many inefficiencies exist across the market that can only be addressed when vendors and retailers work together as they've never done before.

Retailers and manufacturers must put aside their traditional power struggles to focus on the objective—increasing sales to the consumer. One example is the real-time tracking of freight allowances. By automating the tracking using common business rules through a trusted application, this exchange can be closely monitored for appropriate use and better leveraged competitively."

—Kevin Lynch, Nistevo

"In terms of the biggest challenge facing retailers, it's still the economy, and there's nothing they can control there. Retailers need to start looking at IT solutions from a different perspective. Rather than trying to separate process from solutions, retailers should try to integrate processes better. Many retailers have legacy systems and new systems that they've incorporated, and systems that they bought a few years back. But there isn't a lot of interaction between these systems. Retailers should take a wholistic approach, integrating systems that allow them to communicate across all these functions and incorporate an ability to collaborative so they will be much more effective in combating a poor economy."

—Norman Morissette, Sockeye Solutions

"Cost is a huge challenge for retailers. One of the best areas for them to save money is transportation. They need to wrap their arms around domestic and international transportation, and clearly understand the opportunity for cost savings. One way to cut transportation costs is to use a web-based tool to optimize bids. Second, retailers can use a transportation solution that automatically loads carrier contract rates to the operational planning systems, and captures all the information related to transportation movements on a daily basis. In the retail world, a big challenge has always been tracking what's shipping from suppliers and when. Suppliers need a tool to help them communicate easily to their retailers what's going to ship. Some web-based tools allow the supplier to do the update, then the retailer does the optimization and communicates the consolidated freight movement optimization to carriers. The retailer can also communicate to suppliers to let them know what should happen. It's a day-to-day operational process."

—Rob Russell, Manugistics

"The toughest challenge confronting retailers today is gaining visibility and control over their supply chains. One way to gain visibility is to adopt RFID into the mainstream supply chain. It is inevitable. Retailers must be assertive in organizing for the new era of RFID-based smart supply chains. A dedicated staff with the appropriate budgetary authority is paramount to a speedy and successful adoption of visibility solutions. A key to the success achieved with RFID is clever implementation—knowing the capabilities and limitations of the technology, and making the best fit of these capabilities within your operation. Gaining early experience with this new technology is critical. Only those end users who have firsthand knowledge of this powerful wireless technology will be able to maximize its impact on their supply chain."

—Tom Coyle, Matrics

OUR TAKE

Retailers large and small struggle with the same fundamental challenge: How to best match demand for their products to supply, and at the same time leave sufficient margin on the table to allow them to serve customers, compete, and grow. The consensus of the segment experts Inbound Logistics interviewed is that retailers ought to be doing certain things to face this fundamental challenge: better match demand to supply, consider using hybrid flow distribution, institute demand planning and forecasting regimes, act now to synchronize data globally, optimize the transportation network, and control and reduce inventory.

What's your take? If you are a retailer or a supplier to retailers, we'd like to hear from you. Email: editorial@inboundlogistics.com

ROUNDUP RESPONDENTS

Brendan O'Meara is Product Unit Manager, Retail Management Systems for Microsoft Business Solutions

Tom Coyle is Vice President, Supply Chain Solutions for Matrics Inc.

John Radko is chief architect of Global Technology Operations for Global eXchange Services (formerly GE Global eXchange Services).

Jack Harbaugh is the Vice President of Marketing and Business Development for Evant.

Karin Bursa is Vice President of Marketing for Logility.

Rob Russell is Director of Transportation Solutions Consulting for Manugistics

Mike Edwards is Director—Retail, Catalyst International

Christopher K. Sellers is Vice President, Consumer Industries and Retail, EDS Solutions Consulting

Gladys Lau is Director of Product Marketing, QRS

Kevin Lynch is President and CEO, Nistevo

Norman Morissette, Sockeye Solutions

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