Author: Helen Thomas

The demand driven supply chain is a retail optimization model developed and made popular by AMR Research. AMR defines DDSN as a system of technologies and processes that sense and react to real-time demand across a network of customers, suppliers, and employees. AMR benchmark research shows that those who do not implement supply chain improvement have an overall cost disadvantage of 5% of revenue due primarily to poor forecasting and in-stock performance. (see AMR Research Report “Hierarchy of Supply Chain Metrics: Diagnosing Your Supply Chain Health,: Feb 2004).

An article by author Enrique De Argaez summarized the main advantages of DDSN as: participants in the supply chain are all able to take part in shaping demand, as opposed to merely accepting and reacting to it.  Where vendors traditionally had little or at least latent visibility into market demand, the collaborative technologies employed in implementing DDSN have the overall effect of reducing and even eliminating the gap between upstream business and the end customers. This gives more accurate and timely insight into market trends which increases the accuracy of forecasting and supports better in-stock performance.

This type of market intelligence impacts more than just a vendor’s ability to plan operations; it translates directly into reduced inventory holdings across the supply chain, which in turn, means an overall reduction in the amount of capital invested and therein all the associated carrying costs.

Research shows that companies who are best in class as demand forecasting average 15% less inventory, 17% stronger perfect order performance and 35% shorter cash-to-cash cycle times.

As a vendor, a first step in becoming demand driven is to gather and analyze retail POS data. Without the proper tools, this can be a time intensive process. But with the right tools, a vendor can accept multiple retail POS data feeds from their retail customers and begin to understand item sales and inventory on a store by store basis.

The Accelerated Analytics® service provides category managers with a robust tool for analyzing sales and inventory at a store level. Not only for the current week, but also for all the weeks of selling in the database. Armed with this data, the category manager can very effectively identify slow moving items and stock-out’s on a proactive basis. In addition, the Accelerated Analytics® service can provide demographic and weather data at a store level so the category manager can understand how these variables impact performance.

What is Category Management?
Category Management is a retail business intelligence and marketing strategy that analyzes consumers and products and the way they interact. Products are collated into like groups called categories. Once defined, these categories become individual business units and are managed as such. Like any other business unit, they go through regular reviews to determine profitability, trends, opportunities, etc. Consumers are analyzed at the point of sale for trends and activities that will assist retailers in tailoring marketing and displays to consumer’s purchasing habits.
 
How does Category Management work?
Category Management works by providing small, specific business units that retailers and their suppliers can analyze individually. The information from each category analysis is compared to the information from other categories as well as the information generated about consumer trends and activities. Retailers and suppliers then collaborate to determine the best way to market and sell their product(s). Some of the key points of analysis are:

Analyzing these questions yields detailed information about how marketing can be tailored to different categories, how retailers and manufacturers can influence purchases by product positioning, brand promotion, pricing, etc., and how any of these can be altered to increase sales and revenue based on continued analysis of the consumer. For Category Management to work, however, there must be effective collaboration between retailers and suppliers.What are some of the key benefits of Category Management?
 
Improved Productivity. Because product categories are small, specific business units, category managers are able to define concrete roles and objectives for their categories. This allows them to focus on strategies that specifically benefit their category. Both retailers and suppliers will benefit from this narrow focus and collaborate to accomplish mutually beneficial goals.
 
Reduced Costs. The Category Management model provides a more efficient process than traditional management. Smaller, individual categories are easier to manage.
 
Higher Profit. Category Management relates efficient management and consumer-specific marketing to increase sales. Retailers and suppliers can collaborate to eliminate unnecessary effort and better target their customers. Combined with improved productivity and reduced costs, Category Management offers both retailers and suppliers a marked increase in profit levels.

The efficient consumer response (ECR) movement effectively began in the mid-nineties and was characterized by the emergence of new principles of collaborative management along the supply chain. The underlying premise was that by collaborating with trading partners, the supply chain could become more efficient, eliminate excess inventory, and ultimately provide a more efficient response to customer demand. Collaborative forecasting, planning and replenishment (CPFR) and demand driven supply networks (DDSN) are extensions of what was begun with efficient consumer response (ECR).

At the heart of efficient consumer response (ECR) was a business environment characterized by dramatic advances in information technology, growing competition, global business structures and consumer demand focused on better choice, service, convenience, quality, freshness and safety and the increasing movements of goods across international borders aided by the internal European market. Retailers were increasingly realizing their in-store programs can only be effective when inventory is in-stock and on the shelves to sell. Demand planning and accurate forecasting and replenishment are the key – not buying more “safety-stock” because that simply leads to lower operating profits.

This new reality required a fundamental reconsideration of the most effective way of delivering the right products to consumers at the right price. Non-standardized operational practices and the rigid separation of the traditional roles of manufacturer and retailer, threatened to block the supply chain unnecessarily and failed to exploit the synergies that came from powerful new information technologies and planning tools.

In order to better serve customers, and improve operational efficiency, retailers and suppliers began to challenge the traditional supply chain relationships and technologies.

In its simplest form, efficient consumer response (ECR) enables more precise forecasting through sharing and monitoring of POS data.  Improved demand planning within the retail supply chain is the objective. ECR has also lead to innovative new thinking in the areas of market basket analysis, category management and demand planning.

Accelerated Analytics®, developed by the Rainmaker Group, provides an easy no-risk solution to efficient consumer response (ECR).

Accelerated Analytics® connects buyers and suppliers in a collaborative environment where point-of-sale data is used to improve forecast accuracy and decrease stock-outs. The Accelerated Analytics® environment is a hosted service including pre-configured reports, world-class analysis tools and color coded exception dashboards. These tools quickly turn data into actionable information and promote supply chain collaboration.

Why does an outsourced service make sense? Using an outsourced service for POS data analysis is a great idea, because loading data every week and managing servers is not your core business- it’s an expense.  And worse yet, the data and technology change all the time, which makes them very expensive to manage in-house.

Accelerated Analytics® eliminates all the cost and hassle of POS data analysis.

The Accelerated Analytics® service includes:

• Automatic loading of POS data for each retailer
• Hosting of a custom database for all your data
• Detailed sales, inventory, and forecast reports
• Training for your users
• World-class analysis tools
• Phone, email, and web support on-demand

Better yet, here’s what one of our customers said…

“Accelerated Analytics® allows us to quickly come up with exceptions reports showing when on-hand levels are below desired levels and even red flag zero quantities. With this information we are able to offer support to our retail customers stores that need it most and increase the service level for our customers overall. Having management type reports with charts showing information like our (upward) trend analysis on sales is invaluable.” Steven Pugh VP Operations Howard Products.

Retailers and vendors in today’s retail market face the unenviable challenge of reducing costs and maintaining margins, despite falling overall sales and slow-to-recover consumer demand. One of the areas in which retailers are pushing back onto vendors, is inventory management, which for vendors too often translates into retail partners that reduce overall inventories and require tightened delivery deadlines.  Retailers view the supply chain as one of the key places in which costs can be reduced—or better yet, passed off onto someone else—as a means of keeping shareholders happy despite reduced POS sales.  Wal-Mart continues to set the pace in this area, reducing its overall inventories across the board, reducing its brand assortments, adjusting its purchasing methods and imposing tough penalties on those that miss their Must Arrive By Date (MABD).

Thus, the impetus has fallen to vendors to manage their supply chains more efficiently, so that the cost-savings being realized by their retailers’ inventory adjustments might trickle down to them as well, instead of becoming a proverbial albatross.  And while the “glass pipeline” may remain elusive, industry experts postulate that, “Visibility of supply chain costs have never been better.” Since, then, there remains continued pressure on everyone in the industry to reduce costs, there exists an opportunity now to address supply chain optimization unlike any time before.

As in all such processes, the first step in addressing this optimization is identifying the major challenges, which while not simple by any means, can be boiled down to three major focal points:

1. Reduce supply chain costs
2. Improving the responsiveness of the supply chain
3. Managing demand volatility and Variability

From an IT perspective, there are things that can be done with the data already being generated or received by most companies (even small ones!) to address some significant portion of each of these.

Reducing Supply Chain costs

While the operating costs of a supply chain are often the easiest numbers to point to and the most difficult for IT to address, there are data sources that can be leveraged to reduce costs.  For example, purchase orders, shipping data, and RTV (return to vendor) data is either generated internally or is received from retail partners (sometimes in a very straightforward EDI 812 document).  Unfortunately for many companies, these data sources come from disparate business systems and are stored in multiple locations, so tracking a single PO from the time the order was received through the supply chain to its delivery at a store or in a DC is an arduous task requiring proficiency in Excel and fraught with the potential for human error.  Further, when compounded by the volume of orders received that many vendors keep up with, the task of tracking becomes futile, since the actionable information it generates rarely is identified in time to take the given action, but rather is often merely a confirmation of what has already been made known by the retail partner that fined the vendor the late delivery or shorted pallet.  Thus, the lost efficiency of the analysts and the fees assessed by the retailers become additional costs in too many cases, and analysis of this data is simply not conducted.  However, those vendors that are able to aggressively track this data and address issues that may arise in a timely manner can avoid fees and improve their relationships with their retailers.  Unfortunately, upper management often struggles to see beyond the concrete costs figures and consider these less concrete but no less important opportunity for increased revenues or avoided fees.

Improving Responsiveness and Managing Demand Volatility and Variability

The delayed turnaround inherent in the difficulties discussed above relate directly to improving the responsiveness of the supply chain.  That is, supply chain utilization must address two areas of responsiveness:

1. Responding to existing issues
2. Responding to potential issues

Existing issues, as already discussed, are difficult to ID due to the disparate sources of data and the corresponding amount of time it takes to collate the information and determine what issues actually exist, since addressing existing issues is time-sensitive.

Potential issues are no less difficult, since these are often identified by considering all the aforementioned data sources and then including additional data sources such as POS data (from which forecasts are derived).  Mike Griswold, VP Retail for AMR Research, says, supply chain optimization “involves better forecasting methods and moving away from looking at warehouse shipments and toward POS and online sales data.” He goes on: many vendors fail to utilize POS data effectively for addressing supply chain issues because “it’s easier to get your arms around warehouse shipments because you’re dealing with weekly or twice-weekly sources of data.  When you get to POS, you’re getting down to day-level granularity for items and stores, and creating a forecast for three or four weeks out requires a fair amount of processing power.”  Of course, Griswold qualifies his position—forecasting based on POS and other data sources isn’t the final step.  “Retail is not designed to be an inventory holding area,” he says. “You may [get] an order for 1,000 televisions to be deployed across 100 stores, but not every store can handle 10 of each item.”

Thus, forecasts must be based on actual POS historical sales, current trends, other considered supply chain factors, and tempered by the limitations of the stores for which the forecasts are generated.  Retailers provide a shelf-space and assortment designation (called plan-o-grams, modulars, sets, etc.) for most vendors which allows vendors to consider these factors when filling orders, and combined with their own warehouse quantities and capacity, now a very comprehensive and useful picture emerges, from which one may then deduce those potential issues and act to address them, instead of reacting after they become a time-sensitive emergency.

How Accelerated Analytics®  Can Help You Optimize Your Supply Chain

Unfortunately, University of Pennsylvania professor of Operations and Information Management Marshall Fisher says the industry trend for vendors faced with the decision to have too little inventory and lose sales or have too much and be forced to liquidate leans toward the former. “Most companies are just moving along with less inventory. They are downsizing to meet less demand and accepting higher stockouts. The risk of a lost sale is smaller than having lots of unsold inventory.”

But what if you had an integrated database solution that tied all of the disparate sources of data together into a single source of truth, from which actionable decisions could be made on timely, comprehensive data? The Rainmaker Group™, creators of Accelerated Analytics®, was first a business intelligence (BI) company and its expertise in BI solutions can be leveraged to create such an integrated database behind the Accelerated Analytics® interface, creating a powerful yet user-friendly tool that business users need and which management can understand.

Advantages offered by Accelerated Analytics®:

• Integrated database to tie together all your data sources (P.O. files, Shipping documents, POS data, Plan-o-gram files, and more!) in a single location from which may be derived a single source of truth.
• User-friendly reporting solution which provides rapid access to any of the data in the system and reduces the overhead normally associated with the collation and calculation of data
• Exceptions reporting to identify shipping delays, stockouts, etc. automatically as often as required.
• Proven forecasting methodology to generate proactive forecasts based on actual sales and inventory information

There are no shortage of articles on Walmart in today’s press. Some are positive, but many are written from a viewpoint of fear. Here are some interesting facts from a recent article titled “The Elephant in the Room” by Greg Buzek, which was printed in the May 2007 RIS News. The article paints the picture of just how large and dominant Walmart is in just about every category. For example, the article notes Walmart’s average monthly revenue is $28.3 billion, which is greater than Federated’s average annual revenue. Retail Forward predicts in 2007 18% of every food dollar will be spent in a Walmart store, and that includes restaurants. Overall, Walmart is the number one super center, grocer, drug store, electronics store, office supply store and furniture store.

So, if you are a Walmart supplier, or if you want to be, the key question is how do you partner with an organization as large as Walmart? The answer may be your organizations ability to analyze point of sale data. Walmart has invested heavily into information systems and a trading partner portal called Retail Link. As an approved Walmart vendor, you can access near real-time data on how your products are selling and stocked at every Walmart store. The trouble for many vendors is the complexity of extracting the data and then analyzing it can be a huge challenge. We work with vendors that have pulled 100 megabyte plus files from Retail Link only to realize they have no suitable tool to analyze the data. If you are in this category, the first thing to realize is Retail Link was designed to give you access to the data, but it was not designed to help you analyze data. For that, you need to invest into tools capable of doing difficult data crunching. Data files of this volume require a database and sophisticated reporting tools. Most vendors tell us this is a good candidate for outsourcing due to the cost of acquiring the technology and the engineering complexity.

Analyzing Walmart data is a key success criteria for vendors because Walmart expects vendors to proactively partner in avoiding out of stock situations and increasing sell-thru. The first thing to do is engage an outside service for POS analysis. Walmart data files are large and will require a good database to store and analyze. You will want to capture and store history, so you are going to need a good amount of disk space. Next, make sure you have access to good reporting tools. A spreadsheet is not going to cut it. You simply cannot analyze sales and on-hand data from over 3,000 stores in a spreadsheet, in any reasonable amount of time each week. Unless, of course, you have unlimited time. After you have the tools in place, start with the three most important measures: unit sales, on-hand, and sell-thru at a store level. If you can get a handle on these three performance indicators, and then put action plans in place to improve, you are well on your way. Monitor these each week and get to know which stores are having sell-thru issues. Look for patterns in the data, like chronically out of stock stores, or very slow selling items. Finally, communicate with your buyer(s). Our experience has shown they are very open to vendor initiated conversations. Especially when the vendor has quality reports with accurate data from Retail Link.

If you are a Wal-Mart vendor, you have access to a wealth of data via Retail Link.  As a service provider, we work with a lot of Wal-Mart vendors, helping them to analyze the point of sale data made available by Wal-Mart through Retail Link.   Sometimes a vendor will ask us “If I have Retail Link, why do I need to hire someone to help me analyze POS data?”

Retail Link provides a method for getting POS data, but as the vendor, you will be responsible for transforming the data and you will need a database to store the data.   Both of these are critical to provide for comp week and comp year comparisons, which are the basis for accurate and insightful POS analysis.  The complexity of building a database to store Retail Link data is more than most vendors want to bite off, since it requires hardware, software, and IT skills to accomplish.

What can you do with Retail Link data if you have it stored in a database?

·   Analyze SKU/store level sales

·   Analyze SKU/store level on hand

·   Analyze average unit selling price by SKU/store

·   Analyze plan-o-gram compliance by verifying on hand and selling at traited and valid stores

·   Identify out of stock stores, and even forecast demand based on prior sales

·   Create SCRIPT forecasts for your buyer indicating where inventory is needed to maximize sales and avoid out of stocks.

·   Group stores into A, B, C categories based on SKU level sales volume. 

Wal-Mart buyers expect vendors to use Retail Link data to analyze and manage their SKU activity.  If you are not already using the data, of if you are not using it as well as you could be, then you are missing sales opportunities.  Don’t wait for your buyer to call you and ask a question you can’t address – start working with the data today.