Though German business has earned an enviable reputation for efficiency, a new study shows that their supply chains often don’t run entirely smoothly. Thus there is scope for German retailers and wholesalers to gain a competitive edge by optimizing their supply chain management. Forty-one of the country’s top 250 companies took part in a study carried out for RELEX by EHI Retail Institute. Between them, they represent an annual turnover of around 1bn Euros. One thing became very clear: the same issues cropped up again and again and those participating in the study found them annoying not least because they result in substantial additional costs. The top five annoyances were as follows:
1. Lost sales due to stock-outs
Stock-outs are one of the most pressing issues in German trading. Typically, they are caused by poor forecasting and unexpectedly high demand. Customers don’t like going to shops only to find that what they want is out of stock. Conversely being the store where the things that shoppers came for are always there is a great way to build loyalty and win customers from stores that have availability issues. It comes as no surprise that 82.9% of those participating saw the value of reducing the number of out-of-stock situations. Almost 4 in 5 (78.1%) wanted a system that would flag potential problems in time for them to take action to avoid stock-outs.
Reporting consumes a lot of time: on average manually produced reports take around five and a half hours, customer reports a little longer, almost seven hours. But many companies, around a third of the sample, find it even more time consuming with reports taking more than two days of a colleague’s time – time which might be better spent on other tasks and projects. The fact is that this is all time that could be saved as the latest supply chain management software literally produces reports at the touch of a button, thus freeing up time for work that adds more value.
3. Lack of cooperation
The most positive finding is that 56% of participating retailers and wholesalers share partial or complete data with their suppliers, providing information essential to ensure supply chain transparency. That said, only one participating company had actually established full cooperation and coordinated demand planning, sales forecasting and replenishment with its suppliers. Moreover, only two other participants are planning to implement CPFR (Collaborative Forecasting, Planning and Replenishment) in the foreseeable future. And yet 63.4% of participating companies saw high value in close collaboration with suppliers. Indeed, the benefits of shared information are obvious: Availability rises and inventory levels can be minimized. CPFR can help avoid stock-outs and manage changing needs and fluctuating demand better – preparation is key. If there’s a conclusion to be drawn it’s that many retailers and wholesalers in Germany don’t see a way forward to the closer collaboration they desire.
4. Lack of information
The supply chain managers interviewed knew what they needed to do but many felt they lacked the data they needed to do it as well as they would have liked. Around 39% of participants described their knowledge of what was happening within their own supply chain as insufficient. But in order to come up with precise forecasts and appropriate allocation on store-level, detailed insight into these processes is crucial. Indeed, it’s now possible to produce accurate forecasts at a level of accuracy that couldn’t have been achieved before, thanks to the flood of information and data that modern retail and wholesale businesses produce. However, the sheer complexity makes it increasingly difficult to calculate optimal order quantities manually. Too many factors need to be taken into account, be it seasonality, bulk prices, delivery times or supplier reliability – with thousands of products, these calculations exceed the capacity of humans to process them. Thankfully the latest high-performance SCM software can calculate optimal order quantities within seconds.
5. Depreciation due to spoilage
Needless to say that all food retailers see the value of reducing spoilage. But only half of them are able to come up with good forecasts for perishable goods. Whereas overstocks of non-perishable items can be shifted given sufficient time, with fresh food and other short shelf life items miscalculations can be financially catastrophic. They lead to spoilage and consequently to high costs – there’s a clear need for action in the area of fresh food replenishment.
At RELEX we’ve encountered all of the above regularly and we’ve gained wide experience of helping our customers to address such issues. The good news is that none is insurmountable. Indeed, the solution is often far simpler than businesses realize. And the gains to be made don’t just benefit individual businesses, they benefit us all through the progressive elimination of waste and the lower prices that result from greater efficiency.