Why does the most mission critical business process for a retailer almost always stink?
Out-of-stocks have plagued retailers for decades and excessive inventories, their counterweight, erode margins and increase operating costs. Like a seesaw, it never seems to come into balance.
Retail replenishment systems, the planning engine of retailers in the digital age, were supposed to put an end to all of that.
And yet, lift and drop…
Granted, sometimes the issue is the actual technology. But often enough, technology is already in place and it’s not being used the way it was meant to be.
So, whether the system fits or not, 4 typical behaviours cause retail replenishment to stink:
1. Getting the basics wrong
We’ve lost count of the number of software demos we’ve seen where a canned script was presented (using suspiciously perfect data) showing how price elasticity can automatically be factored into the forecast. Or how cannibalization / affinity relationships can be analyzed and accounted for during a promotion. Or how the inventory levels at each node can be mathematically optimized to maximize sales while minimizing inventory. Or…
That stuff all sounds great, but…
• Is your master data accurate and properly maintained?
• Are your promotions on time and do they produce sensible numbers?
• Are your store inventory records accurate? Do you even measure them?
Even a shiny new system can’t overcome sloppy process and lousy data… “lipstick on a pig”, as they say.
2. Misplaced trust (or lack thereof)
There are only a handful of things that need to be considered before placing a replenishment order and they haven’t changed since the beginning of time: expected demand, current on hand inventory, on order quantities, lead times and order multiple (or pack size).
The only one of these that requires any thought or effort is expected demand (i.e. the sales forecast). If the sales forecast is reasonable and the rest of the information is reasonably accurate, then there is no need for a human being to ever place orders.
Yet, many retailer replenishment analysts still spend a ridiculous amount of time and effort manually creating orders and babysitting them through their lifecycle.
Update the forecast. Let the system order.
At the opposite end of the scale are people whose trust in technology is so great that they expect the system to do absolutely everything (plus make julienne fries!). The system’s job is to perform the menial, number crunching tasks for the planner (after all, in retail, there are usually millions of product / location combinations that need replenishment).
But the system is only as good as your historical data.
The planner’s job is to perform the two critical tasks that the system can’t do – 1) think and; 2) take accountability for the process and the results.
To our knowledge, no planning software company has yet developed an “accountability module” that can take the heat for forecasting mistakes.
3. Forecasting things that aren’t really demand
In the 1970s, Dr. Joe Orlicky (one of the fathers of time-phased planning) made a profound statement that shifts the paradigm of retail replenishment systems: “Never forecast what you can calculate”.
From the assembly line to the store aisle, everybody’s activity is ultimately about servicing the people pushing the carts through the checkouts. We need to spend our collective time figuring out what they want and when they want it. That’s all you need to know in order to plan replenishment for the entire supply chain .
Time spent forecasting anything but sales at the store is time wasted.
4. Using band-aids as a cure
Most retailers have an eclectic mix of different product classifications:
• Fast and slow selling
• Seasonal and year-round
• Frequently promoted and seldom promoted
• Bread-and-butter and promotional or short lifecycle
Nothing wrong with that – until you assume that you need an eclectic mix of business processes and system workarounds to manage these variations in the business. From a retail replenishment point of view, what’s the difference between a toaster oven, a can of beans and a garden gnome? Don’t they all have a forecast of expected sales? Wouldn’t replenishment order accordingly? When you take the view that a problem is complicated, you develop solutions that are complicated… and, often, less effective, as a result.
Given the size and scope of the retail supply chain, there’s no shortage of retail replenishment challenges to contend with, even when things are running smoothly.
Learning to identify and modify these 4 typically problematic behaviours generates happy customers and profit. It also helps to keep the lid on drama!
Let’s do without the self-inflicted complexity. Retail replenishment doesn’t have to stink!