Can you imagine trying to improve something for over a decade and achieving no progress? You’d want to shoot yourself or at the very least, admit defeat.
Retail out-of-stocks have not improved one iota in the past 15 years. Numerous studies indicate that retail out-of-stocks have stubbornly remained at 8%, rising to 15%+ during promotional periods.
This despite the fact that retailers spent millions of dollars on sophisticated forecasting software; new replenishment strategies and various collaboration approaches with key suppliers in an effort to reduce retail out-of-stocks.
Why haven’t we been able to put a dent in retail out-of-stocks?
Because the retail store has not been connected to the supply chain planning process!
The Flowcasting process ensures that the projected demands at store level – customers buying product from the shelf – directly drive the resource requirements for all other partners in the retail supply chain.
Flowcasting – A Proven Approach Applied to Retail
Manufacturing Resource Planning (MRPII) has been used in manufacturing to manage inventories for decades. Distribution Resource Planning (DRP) applied the same principles to the management of distribution inventories, resulting in significant improvements in fill rate and inventory turns. Flowcasting extends this thinking to the retail store – the place where the information flow starts and product flow ends – thereby closing the supply chain loop with a common process for all nodes.
The solution is simple and intuitive – first, create a model of total supply chain from the factory to the store shelf inside the same system (see the picture below), then make a forecast for what consumers are going to buy, item by item and store by store, projected out over a long time period, typically a full year in weekly buckets.
With a clear picture of demand at the ultimate point of sale, upstream supply nodes can be planned with simple scheduling logic to meet demand. It’s just 4th grade math applied on a grand scale.
Where to Look for Incremental Sales Gains – Andersen Consulting & Coca-Cola Retailing Research (1996), Retail Out-of-Stocks: A Worldwide Examination of Extent, Causes and Consumer Responses – Grocery Manufacturers of America (2002), Improve OOS Methods at the Shelf – University of Colorado/London Business School, published in ERI Journal (2006), Just How Big is the Out-of-Stock Problem in Retail? – Supply Chain Digest (2009).
Imagine that you could somehow see every potential product movement that will be taking place in the extended retail supply chain for the next 52 weeks: POS sales for every product at every store for the next year and all future shipments between stores, distribution centers and manufacturing plants in the extended supply chain.
Imagine that this information is completely updated on a daily basis. When daily sales come in higher or lower than expected on any product, the store’s ordering plan changes that very same day. The precise impact to every other node in the supply chain is instantly modeled. Not only are the DC’s and plants notified immediately, but their replenishment and manufacturing schedules will be automatically updated to reflect the net impact of the change on their operations.
It’s like having a complete retail data warehouse where all the dates are in the future instead of the past.
In a Flowcasting world, no information for any product at any location is more than 24 hours old. There’s minimal risk of running out of stock before the next order review, because every item at every location is reviewed daily. This is a whole new level of consumer responsiveness that is quickly becoming a necessity, not a “nice to have”.
Multiple pilots and early implementations of the Flowcasting process have shown that customer service levels in excess of 99% can be achieved and consistently maintained at store level. In addition, all forecasting activities across the extended retail supply chain – except where it matters (the retail store) – are completely eliminated.
Flowcasting is the only forecasting, inventory management and replenishment approach that is specifically designed to quickly and obsessively keep stores in stock while actually reducing inventories and operating costs. It’s an absolute imperative for retailers who are looking to finally put an end to retail out-of-stocks.