Any modern-day discussion about the food retailing supply chain is likely to include such hot topics as out-of-stocks, food safety and security, and transportation challenges, just to name a few. It’s easy to imagine how retailers could quickly become overwhelmed by all of the “weak links” that need to be addressed.
Yet several supply chain experts who spoke to Progressive Grocer are urging companies to look for the forest beyond the trees, so to speak, and embrace a move toward a demand-based supply chain, if they haven’t already done so. That change of mindset could help them not only shore up their weakest links, but also ultimately prepare them for a new era of retailing that requires well-planned multichannel execution.
“The weakest links in the supply chain are the systems, processes and thoughts that keep retailers and wholesalers from moving to a demand-based supply chain — ordering for the supply chain from retail needs, and total supply chain inventory,” advises Eric Smith, president of Supply Chain Optimization LLC, in Winterset, Iowa.
Smith, a former Hy-Vee VP of MIS, urges retailers to “harness the power of point-of-sale data” to replenish items in their supply chains.
Mike Griswold, a research VP for the consumer value chain team at Stamford, Conn.-based research and advisory firm Gartner Inc., has a similar viewpoint, calling forecasting the “biggest” weak link for food retailers.
“Many of them don’t possess a point-of-sale-based forecasting tool or automated replenishment,” he notes. He would like to see more retailers implement a system akin to sales and operations planning (S&OP) to better align planning and execution activities across the organization.
Not coincidentally, Gartner has published hundreds of documents for more than a decade to promote the “demand-driven” concept. This philosophy applies to multiple industries, not just retailing.
What does it mean to have a have a demand-driven supply chain? According to Gartner: “The model is characterized by an understanding of customer value, with processes and metrics that enable business trade-offs to deliver products and services profitably. Companies that work toward the DDVN [demand-driven value network] ideal use demand management as a key differentiating capability, so they can plan, sense and shape in a way that brings profitable balance to the business.”
One retailer that appears to be moving along the demand-driven continuum is Bentonville, Ark.-based Wal-Mart Stores Inc. Gartner lauds the company for its “continued push into e-commerce channels in 2015, with more than $1 billion in new investments.” Global revenue in that channel increased 22 percent to $12.2 billion in the past year, the firm reports.
Walmart set up large, dedicated online fulfillment centers to support its U.S. e-commerce business. Meanwhile, by stocking product centrally, it simultaneously increased assortment by 60 percent to more than 10 million items, according to Gartner. About 75 percent of Walmart’s online sales come from nonstore inventory, providing a source of growth outside of brick and mortar.
Gartner’s Griswold urges retailers to envision how they can make the most of e-commerce opportunities, even within physical locations. “In-store multichannel execution is one of the weak links in the supply chain,” he notes. “The ability to understand store fulfillment capacity — how many orders you can process — along with how many associates you can use, are real gaps for many retailers.”
He further encourages grocers to link their multichannel strategies with longer-term real estate and site selection processes: “The stores we need in [the future must] account for multichannel activities that will be happening in the stores.”
Visibility and Food Safety
In a different but equally important part of the business, food safety and security can benefit from the inventory visibility that ideally comes with a more demand-based supply chain. Angela Fernandez, VP of retail grocery and foodservice at Lawrenceville, N.J.-based GS1 US, notes that “the need for improved supply chain visibility is becoming more critical to ensure the accurate identification of products, as well as the delivery and tracking of safe food to all areas in the store.”
The GS1 US Retail Grocery Initiative, which began about two years ago, now has a specific workgroup dedicated to the topic of supply chain visibility, and the members of the group have made recent progress in creating a dashboard to measure the implementation of GS1-128 bar codes for case-level traceability processes, according to Fernandez. GS1 US is also working with retailers to improve operational efficiencies and data accuracy, which certainly impact the retail supply chain as well.
Changes like these won’t happen overnight, but with a more demand-driven perspective that includes a focus on visibility, retailers will only continue to improve their supply chain strategies.
“The weakest links in the supply chain are the systems, processes and thoughts that keep retailers and wholesalers from moving to a demand-based supply chain — ordering for the supply chain from retail needs, and total supply chain inventory.”
— Eric Smith, Supply Chain Optimization LLC
“The need for improved supply chain visibility is becoming more critical to ensure the accurate identification of products, as well as the delivery and tracking of safe food to all areas in the store.”
—Angela Fernandez, GS1 US