As Thomas Edison said, “Vision without execution is hallucination.” It’s great to have a vision—a confident prediction of what consumers will buy at the store or online with various fulfillment options. But, executing on that vision so that it comes into fruition requires careful inventory placement, timely replenishment, capacity and flow planning with continuous monitoring of issues, and taking action to mitigate out-of-stocks and resource breaches.
Below, we discuss fulfillment execution best practices that drive lower cost-to-serve while maintaining high service levels.
Replenish efficiently to improve availability and reduce waste
A robust daily forecast that considers weekday purchase patterns, promotion impacts to demand, store planogram and backroom storage constraints, time-phased safety stocks, and lead times can drive replenishments to the store. Retailers are looking for an automated and low-touch way of executing replenishments to the store since it is impossible to manage thousands of items with intra-day, daily, weekday, and weekly deliveries.
The forecasted replenishment to the stores from the DC, as well as safety stocks at the DC, should drive automated purchase order generation to the vendors. Purchasing from the vendors needs to incorporate various complexities related to storage, vendor capacities, lead times, and sourcing rules.
Ensure fulfillment execution with a Control Tower
As the great boxer Mike Tyson said, “Everybody has a plan till they get punched in the mouth.” The planning organization may have the best-laid plans, but massive volatility in the operational environment requires continuous course corrections, with scenario planning and evaluation of various competing alternatives.
Many retailers are now looking at control towers to address many supply chain blind spots, including unexpected supply shortages, network bottlenecks, response to disruptions, and big changes in what consumers are purchasing and where they are purchasing. Control towers support retailers in sensing demand fluctuations and supply disruptions in real-time, translating that into various risks—the risk of poor customer service or the risk of lower revenues, or the risk of lower margins due to expensive course corrections. The most advanced control towers diagnose the root causes of supply chain failures and prescribe one or more corrective actions along with their costs and tradeoffs.
Capacity and Flow planning reduce cost-to-serve
Grocery retail is subject to near-term network flow volatility due to promotion calendars, holidays, weather impacts, store resets, and large assortment updates. Improving on-shelf availability is a constant struggle, and capacity planning processes are largely managed with manual spreadsheets. Demand needs to be adjusted across stores and regions with changing allocations or pulling in replenishments when storage or transportation capacity is available.
Flow planning at various levels of granularity is becoming the best practice to align various fulfillment capacities with volatile demand patterns across categories and regions. The key driver to optimal flow plans is a logistics forecast which can be either derived from past shipment patterns or SKU/category level demand forecasts at the store or store cluster level. Retailers resort to flow plans that look out into the future at varying intervals (90-day, 21-day, daily) to align capacity with demands to improve efficiency and maximize profitability.
Overall, the benefits of robust store replenishment processes are numerous and critical to maintaining razor-thin grocery retail margins. Retailers can see greater efficiencies resulting in increased freshness, lower out-of-stocks, less frequent markdowns, and reduced waste of fresh products due to optimal replenishment frequency/schedules and robust safety stock planning. From a financial perspective, robust replenishment processes also lead to increased revenue due to greater on-shelf availability. Additionally, optimal inventory flows between DCs and stores and efficient capacity utilization of storage, transportation, and labor—leading to lower overall costs.
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About the author
Vikram MurthiVice President Industry Strategy
Vikram Murthi, Vice President of Industry Strategy at o9 Solutions, engages with companies to understand their merchandising and supply chain challenges and helps shape their investment strategy and transformation roadmaps. He has extensive experience in supply chain transformation initiatives focusing on business case development, strategic roadmap planning, leading client workshops and solution definition. Vikram is interested in helping consumer-facing businesses leverage Big Data, Artificial Intelligence, Machine Learning and Optimization techniques to improve merchandising, forecasting, inventory planning, omni-channel fulfillment and new product introductions. Vikram has a B.Tech in Electrical Engineering from Indian Institute of Technology (IIT) in Kanpur, India and an M.S. in Computer and Systems Engineering from Rensselaer Polytechnic Institute.