supply chain supplement l inventory control and replenishment

Getting the

‘right goods’ at

the places and times

customers want to buy takes

more than inspired guesswork

and previous experience, it takes an

accurate demand forecast with good

understanding of both customers and

product lifecycles.

Note that little word: ‘an’. A single demand

forecast – not the best guesses from store,

warehouse or merchandisers, but one forecast. “The

forecast also has to be accurate enough to give a

good result,” says Howard Dearing, business development

manager at Aldata. “But not too heavyweight to make it

difficult to use.”

Go withthe flow

Retailing is about having the right goods in the

right place at the right time – but for today’s

multi-channel operations at the right

places are proliferating and the right

time increasingly demands near

real-time information,

says Penelope Ody

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Aldata’s latest

addition to its fore

casting system takes

both warehouse and

store forecasts and then

compares the predictions

with actual performance

to identify which is the

more accurate. It then

automatically uses that

to predict demand,

constantly remodelling

and comparing actual

performance with

prediction to ensure

that the more precise

forecast is used. Launched

earlier this year, the

technique is currently being used by Auchan and Intermarché

in France.

Future forecast

But merging warehouse and store forecasts is just the start:

enter the new science of ‘flowcasting’ which looks at integrating

and managing forecasts from store level right back to primary

materials supplier, matching what is needed with what is already

in the pipeline to reduce safety stocks and improve efficiency.

“As you move up the supply chain there is a tendency to

over-order to build in safety stocks at each stage, while forecasts

used to drive replenishment often ignore outstanding orders,” says

Mikael Bisgaard-Bohr, retail industry director for NCR Teradata’s

European operations.

“Most replenishment systems are based on calculations made

at a point in time,” says Bisgaard-Bohr. “What is needed is

time-phased replenishment which can look at a complete

picture of demand over, say, 15 weeks, take into

account outstanding orders and create an

accurate picture of what is needed.”

The move to a ‘just-in-time’ model

requires co-operative data

sharing between suppliers

and retailers and can

reduce safety stocks

by ten per cent

moving to

a ‘just-in-time’ model.

The approach is already

being adopted in the US by

the likes of Wal-Mart, while

Flowcasting for the Retail

Supply Chain* has become essential

reading for many IT directors.

Don Brenchley, domain leader for

collaborative solutions at JDA, agrees.

“There needs to be a more holistic approach

to the supply chain with technology used to

improve visibility and co-operation with suppliers

– inventory management needs to be seen as more

of a network,” he says.

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JDA’s Network Collaborate application takes information from

legacy and other relevant systems and makes it available over the

web for all trading partners to access. “You need to achieve a

single view of the consumer right through the supply chain using a

common forecasting algorithm to drive operations,” says Simon

Bowes, JDA’s vp for marketing and business development in EMEA.

“It means optimising the network and looking at how much inventory

there is throughout the entire chain, what is where, and how to

achieve the best service levels and minimum stocks.”

O2 is already using JDA’s systems to improve its operations. So

far it has achieved a 65 per cent improvement in forecast

accuracy, 33 per cent reduction in inventory and a 20 per cent cut

in new handset disposals.

The approach is also being enabled by Teradata’s Demand Chain

Management system. “A year ago if we mentioned time-phased

replenishment, retailers in

Europe would just look puzzled,”

adds Mikael Bisgaard-Bohr, “today

there is growing interest. It requires

major changes to retail processes and

that will take time to achieve, but the

rewards are significant.”

The authors of Flowcasting suggest that a one

to six per cent increase in top line sales can be

achieved by such techniques while Bisgaard-Bohr

suggests a 1 per cent increase in forecast accuracy can

lead to a 0.3 per cent uplift in sales. The benefits for

manufacturers are also significant with organisations like AMR

Research suggesting performance improvements of up to 20 per

cent higher up the supply pipeline.

In the long-term such ‘just-in-time’ accuracy could transform

the CPG sectors approach to promotions, with no surplus stocks to

shift and no need for hefty discounts to encourage purchase.

Special offer

But it is not just better forecasting that can help sell more

goods at full margin. In the fashion sector WE, which operates 250

stores in six countries, is now having to run its biannual clearance

sale as a separate season – buying in special offer lines as there is

so little regular merchandise left to discount.

The company uses i2’s planning applications including its Buying

and Assortment Management module launched last year. “Fashion

retailers need to plan assortments on a store-level basis to account

for changes in local consumer demand,” says Pieter van den

Broecke, i2’s senior director for retail in Europe. “This tool

automates the process and can be used to re-plan during the

season to improve product availability and adjust the assortment

on a weekly basis.”

Using the system WE has reduced stock levels by 20 per cent and

cut the volume of markdowns by ten per cent. “In the past, our

planning processes were buyer driven,” says Roel Brand, WE’s IT and

programme director. “It was a case of you sell what we buy; not we

buy what you sell.”

According to i2’s Van den Broecke, implementing the Buying and

Assortment Management system can cost around €1million,

although this can be phased over time to reduce up_front costs.

VcsTimeless,

too, is focusing

on store specific replenishment with

its .Next product. “Retailers want to

cut stocks. Matching replenishment to

local stores and local markets is

important,” says Andy Cairns, senior

consultant. “That means re-forecasting in season,

reducing initial allocations and monitoring stock levels

in stores and lead times very closely.”

VcsTimeless launched .Next in February and so far

has five customers including Swiss-based chain Tally

Weijl and Cannelle in France.

With store specific assortments, just-in-time

replenishment and optimised stock levels, retailers

may finally have the right goods in the right place all

of the time.

Footnote: * Flowcasting The Retail Supply Chain

by André Martin, Mike Doherty and Jeff Harrop.

published by Factory2 Shelf Publishing; see

www.flowcastingbook.com for details.

supply chain supplement l inventory control and replenishment

October - November 2006 45

Managing multi-channel

While better forecasting and assortment planning can help put

the right goods in the right stores, customers also buy online and

- if the futurists are to be believed - will increasingly want to

reserve goods for later collection in-store. This requires not only

very accurate stock records but also workforce processes that

will ensure the items really are put to one side for later collection.

To meet this need Sterling Commerce launched its

Multi-Channel Store Operations system earlier this year. “In the US

studies suggest that 40 per cent of direct ordered hard line sales

are now picked up in the store,” says vp global product

management Scott Pulsipher. “There is a great propensity

for consumers to go cross-channel and that increases the

complexity of fulfilment.”

The system integrates with existing store and back office

systems to capture orders from any channel, check on stock

availability and co-ordinate collection, returns or complex

multi-source product packages. Users so far include Best Buy and

Circuit City.

In-store collection models need near real time visibility into

store stock levels and some argue that this could prove a driver

for greater use of RFID. Already Dutch store chain Boekhandels

Groep Nederland has rolled out item level RFID labelling to two of

its stores with 16 scheduled for completion next year. Not only

have out of stocks been reduced by 20 per cent in the pilot

stores but when BGN relaunches its website later this year, RFID

will enable the store collection model.

Sarah Taylor, Oracle’s retail industry director also points

to growing interest in RFID to improve stock visibility and

replenishment. “Arnotts in Dublin has been trialing for four

months including item level tagging,” she says, “and it is proving

a very cost effective tool. Multi-channel operations require

greater supply chain visibility and interest in RFID is growing.”

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