The complexity of supply chains has increased significantly as they have become global. Joanne Ellul investigates how technology is being used to manage this and the difference it can make

Within six months, Sainsbury’s will manage its complex global supply chain of about 4,000 suppliers by trading on a single platform, consolidating several legacy systems.

This is just one example of why organised and well-functioning supply chains are crucial to retailers with overseas suppliers and international locations. And electronic systems - like the single trading platform to be used by Sainsbury’s - are providing the answer to the growing complexity of global supply chains.

It’s a common problem. 85% of companies expect the complexity of their supply chains to grow significantly by 2012, according to a recent report by management consultancy PRTM.

A primary concern for retailers is to gauge customer demand in order to manage inventory effectively. “The main challenge for retailers is the uncertainty and volatility of customer demand. Retailers have been and will structure the supply chain to forecast customer demand and there will be more emphasis on building customer retention and loyalty,” says PRTM UK supply chain innovation practice director Gordon Colborn. After all, retaining customers is cheaper than acquiring them.

For its report, Global Supply Chain Trends 2010 to 2012, PRTM surveyed 350 manufacturing and services companies across various industries, including retail, and discovered that 74% of companies found the major challenge to supply chain flexibility is demand volatility and/or poor forecast accuracy.

Harnessing data

Technology that harnesses data from store level can help solve the problem of accurate forecasting to reduce waste in supply chains. Software provider RedPrairie’s flowcasting and inventory planning systems forecast and react to customer demand by analysing each store’s point-of-sale and inventory data.

“Traditional supply chains’ demand planning systems have tackled the retail supply chain from the angle of forecasting down from manufacturing to distribution, not gauging whether the right amount of product is in the distribution centre to ration to stores,” says RedPrairie senior vice-president and executive director Andrew Kirkwood.

The inventory planning system means stock levels can be changed up until stock is allocated to a store in a lorry, Kirkwood says.

Using store-level data means demand is more consistent at each stage of the supply chain, as businesses, including manufacturers and suppliers, are working from the same forecast numbers.

One retailer that sells groceries and general merchandise, which has inventory travelling huge distances, is using this system. “Accurate forecasting reduces stock excesses and shortages are reduced,” Kirkwood explains.

He adds that data is coming from multiple sources along the supply chain: “In the past year or two, a more pool-based model has been used where data is being pulled from manufacturer as well as distribution centre.”

Harnessing store-level data means the system can be refreshed daily based on store results. The need for up-to-date data is crucial in inventory planning and is a challenge retailers must overcome.

This is where technology can only go so far in optimising the supply chain. “Technology has a place in reducing response-time in the supply chain and accurately forecasting sales. However, the business processes the system sits on have to be sound,” Colborn says.

Retailers must make sure technology optimises sound business processes. Sainsbury’s plans to introduce monitoring of food sales on a minute-by-minute basis, allowing delivery schedules to be updated where necessary, early next year. “This will allow it to react to any changes in buying patterns on the same day rather than overnight. It will be able to make better decisions on where to send stock,” says David Grosvenor, managing director at supply chain technology supplier Wesupply.

Collecting data is traditionally a batch process, where there are periods during the trading day when information is collected from stores. “Distribution centres break down the store data based on information that is four to five hours old,” Grosvenor adds.

Sainsbury’s will go live with Wesupply’s single electronic trading platform in October this year and this will be rolled out over the next six months across Sainsbury’s complex supply chain of about 4,000 suppliers. The platform handles, stores and analyses trading data, providing services like order compliance, invoice matching and supplier performance data.

Automated checks - like whether the quantities specified in the order are being met or are being delivered at the right time - means fewer errors in goods arriving and advanced notice if there are problems or shortfalls. Greater visibility into trading data heightens stock control and takes inventory waste out of the supply chain, Grosvenor says.

Sainsbury’s will replace its three to four systems with this single solution to monitor the status of orders across its entire network and manage the availability of products.

Outsourcing is another way to reduce costs and can be used to simplify supply chain management. “We’re seeing a growing demand in outsourcing a fully managed service. This means retailers don’t have to manage a massive infrastructure and bespoke their software. It lowers their costs,” Grosvenor says.

So Sainsbury’s will optimise technology by harnessing real-time data from stores and this emphasis on the logistics processes that underlie technological systems is integral to supply chain success.

Urban efficiency

Urban Outfitters paid similar attention to its logistics when implementing a warehouse management system from Manhattan Associates within its UK business in September last year.

The system receives advance shipment notices from vendors, which allows the retailer to better plan distribution of incoming shipments.

Logistics processes, like cross docking, where items are transferred directly from an incoming vehicle to an outbound vehicle, and cycle counting, where a small subset of inventory is counted on any given day, feed into the system. Urban Outfitters can fulfil orders more quickly and accurately, decreasing handling time and inventory levels, and sending stores accurate information on shipments.

Urban Outfitters chose the technology to deal with high volumes of small orders and it has seen an improvement in the speed of supply chain delivery. Manifesting and invoicing time dropped 80% and turnaround on orders went from three days to less than 24 hours.

Supply chain systems can help manage complex and differing processes. Retailers will manage their costs more effectively and there will be an ethical focus when selecting transport methods, Kirkwood says. “All companies are moving off-road and investing in multi-modal transportation. Such a complex process of organising different schedules needs systemising,” he adds.

As for the future, Colborn sees retailers focusing on design of the supply chain and moving away from UK-centricity. “Regional hubs in other countries are needed to optimise global supply chains. Retailers will find their product offerings in international locations shouldn’t be the same. Tesco has been good at differentiating its product offering in different countries,” he adds.

Global growth is on the agenda, with three-quarters of companies in the PRTM survey expecting an increase in the number of international customer locations. “For any UK-based retailer to secure growth they must build a global supply chain network,” Colborn says.

So whatever system they choose, retailers will need to optimise their supply chain to ensure success.

Global supply chains

85%

of companies expect the complexity of their supply chains to grow significantly by 2012

47%

of companies plan to develop processes for improved demand sensing - the market rate of demand in real-time - rather than having to wait for after-the-fact reporting

74%

of companies found the major challenge to supply chain flexibility is demand volatility and/or poor forecast accuracy

66%

expect a higher number of products or variants will be required to fulfill customer expectations and counter shrinking revenues

Source: Global Supply Chain Trends 2010 to 2012, PRTM