While knowing what inventory is where at any given point is perhaps the defining element of supply chain visibility, it’s actually only one facet of this critical capability, according to Greg Holder, CEO and founder of Compliance Networks.
Visibility that stretches back to suppliers and across to third-party trading partners provides retailers with the ability to track and rate vendor performance while also providing the data to support smarter, more timely decisions around merchandise management, inventory levels, and cash utilization. In an omni-channel environment, supply chain visibility is critical to success.
What level of supply chain visibility do retailers need to function in an omni-channel environment?
Holder: Omni-channel represents a paradigm shift for today’s retailers. Where retailers once competed only on the showroom floor, they now are forced to compete along the entire supply chain. As great supply chain execution shifts from a “nice-to-have” to a “must-have,” visibility will be the key ingredient in determining overall supply chain performance. And visibility goes well beyond simply answering the question, “Where’s my stuff?”
For example, by leveraging supply chain visibility, retailers can glean data on overall vendor performance from what we call the “PO lifecycle.” This refers to all of the supply chain events related to a purchase order — from creation to consumption — whether at a retail DC, an e-commerce facility, or at a retail store. A few of the milestones that are critical to understanding the PO lifecycle are PO create dates, EDI (electronic data interchange) transmit date, start and stop ship dates, cancel dates, vendor routing request date, vendor ship date, arrival date, DC receive date, and store receive date. These are all related to vendor behavior, as are other key elements like PO shipping accuracy, ASN (advance ship notice) accuracy, and PO fill rates. Vendors with long PO lifecycles, low PO fill rates, or high shipping variability require retailers to have larger amounts of inventory on hand, which means higher capital requirements to fund operations. In contrast, vendors that can demonstrate high accuracy rates and short PO lifecycles might qualify for a vendor-to-consumer program, reducing inventory at the retailer significantly.
Should retailers extend supply chain visibility to manufacturers/suppliers and across to third-party trading partners?
Holder: Quite simply, in today’s omni-channel environment, retailers must trade inventory for information. I realize this may sound a tad clichéd, but it is now more important than ever. Today’s retail customer is looking for a seamless buying experience and could care less about the back end infrastructure required to make it all work. In order to accomplish this, retailers must have complete visibility into the movement of goods. Extending visibility back to manufacturers/suppliers or “across” to third-party trading partners lets retailers see vendor inventory not owned by the retailer, so that it can be offered to the consumer, either now or in the future.
In addition, if the retailer’s goal is to offer buy online/pick up in store, then the most important thing is to ensure the inventory at the store is nearly perfect. While some people will claim that RFID will be the cure-all for meeting this challenge, I believe the answer is rooted in just good supply chain execution. The reason this is so important is that it is not just sales and margin that are at risk when the retailer doesn’t execute at the store level. The retailer’s brand is on the line as well. Amazon has made supply chain execution paramount in its go-to-market strategy; traditional retailers would be wise to do the same.
What are some tools retailers can use To achieve near-perfect store inventory knowledge as well as other functional improvements?
Holder: One important tool is the ASN (advanced shipment notification), which has been called an essential building block of supply chain visibility. The ASN gives us valuable information about our PO lifecycle, as well as item-level information related to the inbound shipment. One caution: The vast majority of retailers do not understand the impact of an ASN on inventory integrity, for example when the contents of a shipment do not match the data on the ASN. This is an issue because many retailers blindly accept vendor ASNs once they have approved that vendor to ship via ASNs. Retailers check a few shipments, and when the vendor has passed enough of these tests, they rarely continue to run these spot checks, booking their inventory based solely on what the vendor’s ASN tells them. Unfortunately, this ASN accuracy issue is a huge contributor to inaccurate inventory.
I think one of the biggest opportunities is not a visibility item at all; it is the lack of an item. Using historical data in the PO lifecycle, a solution should know, within a specified date and time range, when an activity should happen but has not yet occurred. In this case, the lack of an item’s occurrence can automatically send an alert to a person or group. Two simple examples of this are: 1) A PO has not been routed by the vendor, and it is within the routing window; and 2) A PO is approaching its cancel date, and no ASN has been received. In both cases, the vendor or buyer can be automatically notified.
Another opportunity is to solve problems earlier in the supply chain. An example of this is an ASN transmission that contains an item or items not on the original order. Because the ASN was sent when the order was shipped, the buyer can decide a course of action for the unordered merchandise while the goods are still in transit.
Can supply chain visibility help retail buyers become smarter about what, when, and how much merchandise they buy?
Holder: The short answer to the question is yes. When retailers have a better understanding of the PO lifecycle at the vendor level, they can use the information to better time their merchandise buys. An intelligent use of data provided by the PO lifecycle enables a buyer to buy closer to the sell date and in more appropriate quantities. So, if buyers know they need to order a product six months out to have it in time for an event, that’s fine, but if they order it six months out and it comes in four months before the event, that’s poor cash utilization.
The benefits of supply chain visibility are huge. Visibility, in one word, means cash — cash in cost avoidance, cash in expense savings, cash in inventory savings, and cash in capital expenditure delay or avoidance. Visibility allows people in the supply chain to see problems before they occur and take necessary steps to avoid expense — all in real time. Visibility also provides insight to make intelligent decisions early in the order cycle, enabling just-in-time inventory, and the ability to perform intelligent audits in the distribution centers on inbound shipments. Finally, visibility also can be a major driver in increasing throughput in the existing distribution network, thus delaying the need for costly new DCs.