Preparing for the unexpected is critical to supply chain success. Alison Clements looks at how retailers can react more quickly to changes in demand
Bogofs and three-for-twos delight British shoppers, but they pose a real challenge to supply chain managers. It’s incredibly difficult to predict how successful deals will be, which means retailers are often left without stock or they over-stock unless they have agile supply chains that can react to live demand.
Asda supply chain director Gavin Chappell highlighted the dilemma at the IGD Supply Chain Summit last November, saying because promotions are so popular “my contention is that forecast accuracy is getting worse
and will continue to get worse”. His point was that no matter how robust systems may be, there’s always the
challenge of relying upon ‘known unknowns’ and ‘unknown unknowns’, making it almost impossible to deliver consistently. This challenge is likely to increase as a higher percentage of stock is sold ‘on deal’.
The agility test
Chappell gave examples of promotions being run in Asda stores at different times of the year that yielded wildly differing results, even though all the ‘knowns’ such as best location in store, previous sales figures, and so on, were considered. “Are we working hard and aggressively enough to build agility into our supply chains?” he asks.
Certainly Asda is working more closely now with suppliers in ambient and frozen foods to try and become as responsive as its fresh food delivery chain. Its own head office supply
chain staff have switched to new contracts that allow Asda to facilitate inbound deliveries seven days a week, and a process has begun to encourage suppliers to “maximise inbound opportunities at the weekend” - a practical step towards agility.
What is Supply Chain agility?
- Agility is not a single company concept. It extends from one end of the supply chain to the other
- The ability to respond rapidly to unpredictable changes in demand
Source: Cranfield School of Management
In these straitened times, most retailers - not just the grocers - are looking at ways to be both lean and agile. So what does an agile supply chain look like and what benefits can it really deliver? Richard Wilding, professor of supply chain strategy at the Cranfield School of Management, says: “In supply chain terms, agility refers to responsiveness from one end of the chain to the other and that means involving suppliers and logistics partners.”
Wilding adds: “Because of the unpredictable nature of life - the weather, consumer trends - there can be large-scale, unexpected changes in demand, so an agile supply chain will have the strategic capability to rapidly adapt.”
Key to agility is supplier collaboration, so that systems are linked and everyone has visibility and early insights into how a promotion or new product is selling. “Retailers now have the capability to monitor the success of the first few days of a promotion, and line-up supply accordingly,” says Wilding.
Sainsbury’s has been proactive in adopting a collaborative strategy with key FMCG suppliers, and in the world of fast fashion, Zara also does this well - albeit in-house - with its strategy of gearing production to the sales success, or otherwise, of the first wave of a new season’s designs into stores.
In some product areas such as electronics and clothing, performing part of the production process closer to the home market can enhance supply chain agility. Final sewing, computer assembly or packing with the relevant country instructions can happen in Turkey, rather than China, slicing the lead times on products known to be high demand.
A special relationship
Wesupply managing director David Grosvenor says those retailers wishing to reduce capital tied up in stock by maintaining lean inventories are most in need of agile supply chains. “Agility relies on high visibility of transactional data between a retailer and its suppliers - having that visibility of order status engenders confidence and clarity between both trading partners and so allows inventory to be reduced, and responsiveness and agility to be increased,” he says.
Wesupply’s fully managed EDI solution is currently used by Sainsbury’s to provide a business-to-business service for 4,000 suppliers, streamlining the exchange of orders, shipping information and invoices in support of the delivery of product from supplier to distribution centre or store.
“Risk mitigation and agility go hand in hand,” says Grosvenor. “Trying to make sure you commit as late as possible to any kind of plan - hedging your bets - is a good way of reducing supply chain risk; however, it requires agility in responding quickly,” says Grosvenor. He believes one of the best ways of doing that is to ensure all supply chain partners have access to forecast information and relevant data, not just the top 20% of suppliers. Moreover, such access is now far more feasible for smaller suppliers with the advent of the internet and the ‘online supply chain’.
Empowering suppliers with quality information is at the core of supply chain agility, but by working in collaboration with third-party logistics providers, achievements can also be made. Unipart Logistics operations director Andrew Dewsbury says: “The more we can do with our partners to plan for unexpected events - be that bad weather, fuel strikes, civil unrest - the better they can serve their customers.”
Unipart has embraced the ‘lean’ business philosophy and works with customers such as Pets At Home, Vodafone, Sainsbury’s and Habitat. Planning for the unknown means knowing what’s happening in their customers’ markets and where demand is surging or subsiding. “It might mean daily communication between us, reviewing stock needs very regularly, and planning future events together,” says Dewsbury.
Is agility needed everywhere? It’s debatable. Some products such as men’s black shoes, white T-shirts or pillowcases have stable demand, while others are highly volatile. “You have to look at each product group and decide your sourcing and inbound delivery path accordingly,” says Wilding. “While it might be worth bringing production closer to home for women’s fashion shoes, men’s black lace-ups can cope with long lead times from the Far East.”
It’s a complex area and the answer varies from one retailer to another. It may take time and energy, but the benefits will be vast.
Pets At Home: Agility in Online Fulfilment
Pets At Home’s online operation was launched in 2008 and is growing fast.
Its website has its own fulfilment warehouse run by Unipart Logistics and the two companies are aiming to maximise sales and optimise efficiency as the business grows.
Inventory and sales visibility make it easy to respond to promotions or seasonal changes in demand, but there are also shared goals and common KPIs, with the warehouse team informed with what’s happening in the Pets At Home business and encouraged to feel involved in the brand. Pets At Home director of multichannel Matt Stead says: “There is collaboration with Unipart from strategic planning right down to the pick, pack and dispatch colleagues.”
The retailer runs many promotions on pet foods, one-day deals and ‘buy one get one half price’ on leading brand names - so a lot of work goes into planning with suppliers and ensuring the warehouse team are ready to deliver. Stead says: “Thanks to advanced knowledge, the warehouse can be geared up to flex depending on demand. So that might come down to reserving extra space at the front of the facility to make dispatch of goods as easy and fast as possible, or it might be systems and communication working hard to pull in inventory just when it’s needed.”
Flexing the labour employed at the warehouse is a good way of being lean and agile, says Unipart operations director Andrew Dewsbury. “We plan labour very carefully so that a skeleton night shift can come on at short notice to cope with a busy patch. Or conversely, if things are quiet, we can re-deploy a team across to another contract rather than expose the original customer to the cost of too many people. Agility is about the ability to scale down as well as up.”