Solving the retail and supply chain dilemma

Oct 12, 2017 4 min

As a retailer, you’re under tremendous pressure from all sides. The good old days of simply stacking the shelves and watching it sell are long gone and the competition is fiercer than ever. You put huge amounts of time, money and effort into getting shoppers to visit your store and, still, many of them only come in to compare your assortment and prices against those of the world’s biggest mall; the internet, which they carry around with them everywhere.

How can you compete against the whole world? Well, you have something that they don’t; proximity. You can satisfy consumer needs instantly! After all they’re already in your store, or they dropped in earlier, and shopping with you is simply easy, pleasant and convenient.

But, of course, it’s never as simple as it sounds!

The Retail and Supply Chain Dilemma

What if you don’t know what products the customer wants to buy? Or, what if you know exactly what the customer wants but when he or she walks into your store, you’re out-of-stock, or worse, you have stock but it’s not on the shelves. Studies have actually found that 72% of all out-of-stock situations are due to poor in-store-management.

So, what options do we have? Most of us know what it’s like on both sides of the fence. We’re not just retail and supply chain professionals, we’re also consumers. And as consumers we’re all too familiar with the scenario of going into a store, realizing that the product we wanted to buy isn’t on the shelves and asking store staff to check if they have one in their backroom. As a consumer I’m not happy and I’m 100% sure that the store manager is not happy either. We also know that depending on the category, up to 4.5% of sales are lost due to out-of-stock situations and of that 25% is due to failure to shelve products. It all adds up to huge sums of money!

The good thing here is that most retailers know this can happen and are taking measures to counter it. We already know that with the right forecasting & replenishment software, and good processes, we can make sure that we order the correct quantities of goods to our stores whatever the season or whatever the product life-cycle. We also know from experience that with good store-specific space and assortment planning we can have the right assortment in the right store, at the right time, and we can even plan it so all the stock fits onto our shelves so our back room only carries minimal stock. But although this is well known, and although these applications have been on market for quite some time now, the overwhelming majority of companies RELEX encounters are still facing considerable problems in these areas. What’s more, the sort of process failures that lead to stock not being on shelves are simply unsustainable if businesses are serious about attracting customers who have the world at their fingertips thanks to the internet!

So, what’s the answer?

Unify your Retail Planning

If you set out with the sole aim of designing the very best forecasting and replenishment process, then when it came time to assess and plan around the space that you’re replenishing, I can virtually guarantee that you would struggle. Conversely if your goal was the equally narrow one of creating the perfect space planning process, but you didn’t design it specifically with forecasting and replenishment at its heart, I can be similarly confident that it wouldn’t mesh well with your supply chain planning.

The only really effective option is to aim to unify these processes from the moment you start to specify and design them.

What might it mean for your business if you could plan your store space based on forecasts and, in turn, plan your replenishment based on actual available space? You would be able to make minor space changes weekly, or even daily, to reflect the projected sales for any single product and in turn you’d feed minimum and maximum replenishment parameters into your supply chain software. Then, when you’d refined the process, you’d be able to put all your stock straight onto the shelves and that on-shelf inventory would carry you right through that replenishment cycle. You would be able to make efficient use of main delivery days, category by category. One could also work towards structuring orders sequentially so that the contents of each pallet would reflect the products that are adjacent on the shelves in the store it’s destined for rather than those that are next to one another in the warehouse.

One might argue that this would increase warehouse costs. I agree to an extent, but overall, I would argue it would reduce costs. If you can optimize central warehouse order picking based on your store layout and your store-order sequence it would reduce costs considerably. We should remember that there is 3-1 ratio of costs between store and DC, in other words operations carried out in store are at least 3 times more expensive than they are in the DC.

Our team has calculated that by using this approach retailers could reduce supply chain costs by 4-5%. I accept that to a lot of businesses building a bridge between the theory and the reality as it exists at present, looks daunting. But it was ever the case that most change looks impossible until it’s happened and then, with hindsight, it appears inevitable. And with cost savings of such a magnitude to be made I’ll lay money on the will being there to find new and better ways of doing things.

Written by

Lauri Loikkanen

Head of Commercial, Regular Pricing