Tag: Supply Chain

What Is Supply Chain Management?

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Supply Chain Management (SCM) refers to the complete range of activities needed to plan, control and execute a product’s complete journey, from the purchase of raw materials and production through distribution to the customer receiving their order, in the most efficient and cost-effective manner possible.

If a company wants to compete in international and global markets, they must master their supply chain and networks.

Supply chain management involves the planning and execution of multiple processes that must be implemented to optimize the flow of materials, information and financial capital in the areas that broadly include demand planning, sourcing, production, inventory management and storage, transportation — or logistics — and return for excess or defective products.

Supply chain management also integrates supply and demand management within and across companies. It can include numerous self-organizing networks of businesses that work with one another to provide service and product offerings to customers.

With SCM, companies need the right software and strategies to gain an advantage versus the competition.

Supply chain management is complex, it relies on a number of different partners to run efficiently and effectively. Manufacturers, suppliers and fulfillment, it takes an equal effort from all parties to stay organized and completing tasks. Due to this, effective supply chain management also requires change management, collaboration, risk management, resources and technology to create alignment and communication between all parties.

Supply chain sustainability covers social, legal and environmental issues, as well as sustainable procurement too. All of these are closely related, focused on the pillar of corporate social responsibility, which analyzes a company’s effect on the environment and their social well-being.

Supply Chain Management vs Logistics

Two terms that are often used together but commonly confused is supply chain management and logistics.

While there’s certainly some similarities, logistics is actually a component of supply chain management. Logistics concentrates on moving a product or material in the most efficient way, ensuring it goes to the right place at the right time.  It includes activities such as packaging, distribution, warehousing, transportation and delivery.

Now, supply chain management involves a larger range of task, such as procuring the best possible prices on goods, sourcing raw materials, procuring the or coordinating supply chain visibility across your supply chain network of partners.

Benefits Of Supply Chain Management

Supply chain management has a number of different benefits for your company. For starters, it molds efficiencies, helps increase profits, lowers costs and boosts collaboration. SCM is vital to your business as it allows companies to efficiently manage demand, carry the right amount of inventory, deal with disruptions, keep costs to a minimum and meet customer demand in the most effective way possible. These SCM benefits are achieved through the appropriate strategies and software to help manage the growing complexity of today’s supply chains.

The Complexity Of The Supply Chain

The most basic level of a supply chain includes a company, their suppliers and the customers they serve. As an example, the chain could look like:

  • Producer Of Raw Materials
  • Manufacturer
  • Distributor
  • Retailer
  • The Customer

This is a base supply chain that could work.

When you begin diving deep into a complex supply chain, it can include a lot of different moving parts. A complex supply chain could include many suppliers, even suppliers to suppliers. It can include providers such as third-party logistics (3PL), supply chain software providers,  financial companies, even collecting goods for recycling. It can include many organizations, what ever is required to get products to your customers.

When you have such a complex supply chain, things can go wrong. There’s many things that a company must be aware of. For example, a new product can be released and that may cut demand for the older version of the product. You may have to deal with seasonal holidays, which is often a stressful time for retailers trying to keep product on the shelf. Weather events can also play a role in your supply chain.

Why Supply Chain Software Is Vital

Every company wants a competitive advantage and your supply chain is an area you can optimize. In today’s technological world, supply chain software will play a role in your success.  ERP vendors offer a wide range of solutions for you to focus on key areas (or more) of your supply chain. You’ll also find business software vendors that solely focus on SCM.

Supply chain management software consist of modules and tools that are used to execute supply chain transactions, control business processes and manage supplier relationships. Having this software in place is key to management.

There’s a few key solutions you may want to consider.

  • Supply Chain Visibility Software – Will help you with spotting and analyzing risk, also allowing you to manage them.
  • Supply Chain Planning Software – This will allow you to manage your demand.
  • Inventory Management Software – Allows you to track all of your inventory and efficiently optimize inventory levels.
  • Supply Chain Execution Software (SCEM) – Helps with your day-to-day manufacturing operations. It considers all possible events and scenarios that could disrupt your supply chain.
  • Logistics Management Software – Gives you the ability to track the transport of goods, even globally.

Today, your supply chain plays a bigger role than ever.

The growth of ecommerce and the demand to get products to your customers as quickly as possible has fueled today’s supply chains. While there’s an endless array of options, it also presents challenges for your company as well.

There’s many areas of your SCM where ground can be made, cost can be cut and the input of productivity increased. However, while you have much to gain, there’s also many challenges you’ll face. This is why the right “technology” and “data” is invaluable.

Technology, especially big data, predictive analytics, IT technology, supply chain analytics, robotics and autonomous vehicles, all of these are being used to solve those challenges, reduce risk and avoid disruptions to your supply chain.

Other Terms Related To The Supply Chain

Here’s a few more terms you want to get familiar with that relate to the supply chain.

  • Value Chain Definition – A value chain is a tool that analyzes all the activities a business uses to create a service or product.
  • End To End – The end-to-end term refers to solutions or products that cover the entire length of a specific process.
  • Operations Management – This is the administration of best business practices to create the highest level of efficiency possible within the company.
  • Inventory Management – This is the process of ordering, storing, tracking and using a company’s inventory.
  • Project Management – Project management involves organizing and planning a company’s resources to move a specific task, process or event toward completion.

Retail Value Chain Federation Annual Fall Conference Kicks Off Sunday, Nov. 6th

RVCF’s Annual Fall Conference is just a few days away! We’re working on dozens of last minute details and are looking forward to seeing our customers and partners as well as make new connections.

Attendees can find us in the exhibit hall at booth #30. You’ll have the opportunity to learn more about us and Retail Value Chain what we do and will have two opportunities to win one of our grand prizes – two Merge VR Virtual Reality headsets! Entering to win is easy. Stop by the booth and spin our prize wheel to earn an entry into the drawing for the first headset. To earn an entry for the second headset, post a picture from our booth on Twitter, tag us (@AccelAnalytics) and include the hashtag #ToolstoWinatRetail.

POS Tools On Tuesday, November 8th, Director of Sales and Marketing Jennifer Freyer will present our session “The SOP of POS” at 1:30 pm. Join us in Salon C,D,E to find out how retailers and vendors can FLIP the usual process of managing point of sale data around to get results. Whether you’re a retailer or a vendor we’ll help you understand the value of POS data and how it can help your business.

If you have questions or would like to meet with us at the conference, please click here to set up an appointment.

Calculating the cost of out of stock’s

Vendors know an out of stock or empty peg is a very bad thing, so it’s hard to understand why most vendors are not managing their retail sales at a store and item level. Here is what we calculated for a vendor this week to estimate their lost sales due to out of stocks. The results were pretty eye opening.

This vendor has 4 retail customers. Retailer 1 has 3,600 stores, retailer 2 has 2,500 stores, retailer 3 has 1,800 stores and retailer 4 has 950 stores. Total retail stores = 8,850. Average in-stock % across all four retailers = 98% so approximately 177 stores are out of stock each week. Weekly unit sales for their top selling items average 6 per week so approximately 1,062 unit sales are being lost each week, which is roughly $15,000 in lost sales per week.

In other words this vendor is loosing over $750,000 per year in sales.

The BullWhip Effect

The bullwhip effect is a serious problem for vendors. The article below will provide a comprehensive introduction to the problem and impact. After you finish reading the article do this exercise: calculate the total number of stores stocking your products [# of retailers * average total stores], then multiply by 2%, which is an average out of stock rate. This is the total stores that are currently out of stock on your products. Next multiply by an average weekly unit sales for your key product(s). This is your total lost sales opportunity.

Leading retailers and manufactures are dramatically improving sales and profits by embracing a new supply chain model built upon sharing point-of-sale demand data and closely collaborating on forecasts. Research conclusively demonstrates demand driven collaborative supply chain models drive more accurate forecasts, fewer out-of-stocks, higher sales, and higher operating margins.

There are many variations of demand driven collaborative models in service, the most popular of which are:

  • Efficient consumer response (ECR)
  • Collaborative planning, forecasting, and replenishment (CPRF® )
  • Vendor managed inventory (VMI)
  • Demand driven supply network (DDSN)

The overlap of these models and generally slow adoption is creating a great deal of confusion in the market. While each model is slightly different in its approach, definitions, and processes, they all have a common goal: share actual demand data with all parties in the supply chain and facilitate real-time collaboration to reduce inefficiency and improve sales.

The purpose of this article is to discuss the financial benefits of implementing a demand driven collaborative supply chain model and provide best practices for getting started.

AVOIDING THE OUCH OF THE BULLWHIP EFFECT

The basic premise of the demand driven collaborative supply chain model is that in order to achieve the highest possible in-stock and simultaneously minimize waste, all parties within the supply chain must have timely access to actual sales demand data and all parties must have a means by which they can work together to coordinate promotions and business planning.

A forecast by definition is an estimate made in advance of an event occurring and is therefore an educated guess. Unfortunately, even sophisticated forecasting software can have an error rate of 50% on promoted items. Most troubling of all, forecast accuracy decreases, moving backward into the supply chain.

The reason forecast accuracy decreases, moving backward in the supply chain,  can be illustrated by plotting sales over time for supply chain participants as depicted in CHART 1. Notice the actual sales demand recorded at the retail point-of-sale has moderate variation. This is because the retailer builds their forecast model using actual demand as tracked through their point-of-sale systems. But notice how much more chaotic and unpredictable the demand curve becomes as you move away from the actual point-of-sale. Demand as viewed by the supplier, wholesaler, and manufacturer is based on estimated sales, which combined with latency and manually adjusted “safety stock”, causes increasingly inaccurate and chaotic forecasts. Research indicates a fluctuation in actual customer demand of +/-5% will be interpreted by supply chain participants as a change in demand of up to +/-40%. As depicted in Chart 1, although actual demand has only changed +/-5%, the reaction of supply chain participants is dramatically exaggerated and is known as the bullwhip effect. Much like cracking a whip, the user only needs a small motion in their wrist (point of sale) to cause a huge motion in the end of the whip (manufacturer).

The bullwhip effect causes inaccurate forecasts, inefficiency, and waste within the supply chain. Anytime the forecast line of a supply chain participant (e.g. chart 1; wholesaler, manufacturer, or supplier) is above or below the actual demand line (e.g. chart 1; retail sales) inventory levels are not optimized and out-of-stocks or inventory build-up will occur. The U.S. Department of Commerce estimates $3 trillion in excess inventory is locked in the U.S. and European supply chains. The bullwhip effect is exacerbated by the parties within the supply chain who do not have an accurate understanding of actual demand. In other words, they are forecasting, but the inputs upon which their forecast model is built are inaccurate.

Accurate forecasting and close coordination between supply chain partners can help to eliminate the bullwhip effect and dramatically increase overall profitability. The most effective way to improve forecasting accuracy at each step in the supply chain is to base the forecast on actual sales demand data. In this way, each point in the supply chain can be demand driven and the parties can collaborate on the same forecast inputs. In addition, promotions can be coordinated and managed to maximize sell-thru without causing supply disruptions. As information quality improves, cycle times are compressed through the entire supply chain process.

FINANCIAL IMPACT OF DEMAND DRIVEN COLLABORATION

Numerous studies provide objective financial results from sharing demand data and collaboration including studies from the National Retail Federation, AMR Research, and VICS. The reason the financial benefits are so compelling is they impact both top line revenues and bottom line operating margins; and, these programs are a win-win for both the retailer and the supplier since the financial impact between the two is directly linked.

Financial Impact #1: Increase sales by 5-10%
Average retail industry out-of-stock rates average 8% and can be as much as 40% on promoted items, which results in a loss of sales between 5% and 10%. Demand driven collaborative supply chain programs drive higher sales by improving in-stock rates between 2% and 8%.

Financial Impact #2: Increase operating margins by 5-7%
Many retailers are managing in-stock performance by increasing their base replenishment levels and carrying additional “safety-stock.” While this approach offers a short-term advantage, the long-term drawbacks are obvious; higher operating costs due to slow inventory turnover and higher logistics costs. By sharing demand data, forecast accuracy is improved and less safety stock is required to keep in-stock levels at target. Less capital is tied up in inventory, improving both return on invested capital (ROIC) and gross margin return on investment (GMROI).

Demand driven collaborative programs also have a positive effect on customer brand loyalty. This is because stock-outs also cause another, even more insidious problem – 32% of consumers who can’t find an item will go to another store. If the stock-out occurs three times or more, the consumer is likely to purchase a different brand. So today, the retailer may loose the sale, but tomorrow, so may the supplier. This dynamic creates a powerful incentive to work together for accurate forecasts. As an example, by working with suppliers and closely monitoring point-of-sale data for its 1,450 fastest-selling items, H-E-B Grocery was able to reduce its out-of-stock rate by 22.5% in just eight weeks. Similarly, Sainsbury tracked its 2,000 top items and increased sales by 2%. These are powerful examples of how leading retailers are using demand data and working in concert with suppliers to dramatically improve operating results.