As we near "silly" season, retailers are fighting harder and harder to get control of their supply chain. The more effective they are at balancing demand with the supply the more profitable they will be. A balanced supply chain is one where supply meets demand without having too much stock (overstock) or too little stock (stock-out) at any point in time.
According to retail analytics firm DynamicAction "stock-outs" accounted for $634.1 billion in lost retail sales and "overstocks" contributed $471.9 billion in lost revenues.
What are the key elements to an effective Supply and Demand Chain?
Effective demand signals that drive sourcing and manufacturing
Production aligned with logistics and demand
Inbound and Outbound logistics - OTIF (On Time In Full)
What are some of the issues that thwart companies from being fully effective in this space?
Bad or Missing data - If you don't trust what you are seeing then you are effectively "guessing" on what to stock
Bad or Missing rules - If your Supply and Demand Chain systems don't have rules to effectively recognize demand signals or trigger replenishment buys, as an example, them you are back in the "guessing" game
The DynamicAction report detailed the reasons behind retail’s $471.9 billion loss in revenue worldwide due to overstocks.
Some of the reason's mentioned were:
Forecasting failures ($170.2 billion)
Spoilage ($80.5 billion)
Supplier issues ($42.5 billion)
Weather related issues ($39.8 billion)
Improper marketing ($38.4 billion)
Personnel issues ($32.4 billion)
Products in wrong place ($29.4 billion)
Price match ($13.7 billion)
Vendor mismanaged inventory ($11.9 billion)
Of these reasons I have highlighted 5 causes that could potentially be resolved by simply leveraging your ERP system in the way that it was intended to be used.
What areas in ERP am I talking about?
Continuously maintain your master data - Material / SKU master, Vendor Material / SKU master (vendor specific data relating to your material / SKU - Price, UPC number, ...) - Master data is every evolving
Ensure that the "noise" is out of the system - Old open records
Ensure that the Demand signals are fed in to your ERP system accurately and in a timely fashion
Let the ERP system do the heavy lifting - Based on the demand, supply and the master data and rules surrounding these processes, the ERP system will spit out the needed purchase or production orders
There are always exceptions in the process - This is OK! - Just be sure that the organization structure (people) are aligned to do 2 things: 1) Maintain the master data and business rules in the ERP system 2) Manage and resolve the exceptions as and when they occur
You can't change the weather to recover $39.8 billion but you can start addressing your Supply and Demand chain today and reign in $286.4 billion....
Feel free to leave your thoughts and comments below.