Supply Chain Brain - November 2010

instantly to any issues that might arise, says Cedric Guyot,
vice president of marketing with Retail Solutions.

Retailers these days have much different expectations of their con-
sumer packaged goods (CPG) suppliers. They’ve been practicing
Collaborative Planning, Forecasting and Replenishment (CPFR) for
more than a decade, but true collaboration now goes all the way to
the store shelf. Walmart was a pioneer in that area, offering point-of-
sale and planogram data some 15 years ago. “Today, there are a
whole lot more retailers starting to share data, taking a very different
approach,” says Guyot. “They’re telling suppliers, ‘I want to treat
you as a strategic part of my organization.’”
For years, the biggest retailers essentially dictated terms to
their suppliers. Now, says Guyot, they’re seeking more balanced
relationships. The common goal is to satisfy the ultimate cus-
tomer—the shopper. “Both [retailer and supplier] have the same
objective,” he says. “The right place and time for the right new
product. Today what we see is a willingness to work together in a
more effective and efficient way.... It’s different from the old
adversarial relationship.”
For the most part, suppliers are required to meet that challenge
with smaller staffs. They have fewer people on the ground, visiting
stores on a regular basis. Retailers, too, find themselves with shrink-
ing resources to manage the flow of merchandise. To cope with the
shortfall, both sides need to do a better job of managing promo-
tions, even as they cut back on safety stock. Guyot cites instances of
suppliers boosting sales by 3 to 5 percent, through the better use of
demand based on sell-through. New products usually take four
weeks to reach 90-percent distribution, he notes. “If you are able to
point out issues, you can gain two to three weeks of sales on every
new-product introduction that you run.”
The new concept of retail execution management is the next
step after CPFR, Guyot says. The latter did a good job of extending
visibility to the retailer’s warehouse. “At that point, all the rest
became a black box.” Now it’s the task of retailer and supplier to
stretch that capability to “the first moment of truth—the moment
when the consumer first picks up an item on the shelf.”

Say Goodbye to SLOB—Slow and
Obsolete Inventory

Waste in the supply chains of process industries—or slow and obsolete inventory—amounts to about 0.3 percent of revenue. That’s significant, says Lora Cecere, industry analyst with Altimeter Group, but few people want to talk about it because it signals that the supply chain is not working effectively.

Slow and obsolete inventory is probably not the most exciting of
topics, but it is quite important to those charged with cutting fat out
of the supply chains of process industries. “Who wants to talk about
the inventory they wrote off last year?” Cecere asks. On the other
hand, “If you’re not writing off much, then you really are much
more effective.”
A root-cause analysis will likely show that most SLOB comes
from new-product launches that don’t quite meet expectations. “We
really need to look at the rate of change of that new-product launch
and react very quickly through S&OP processes,” she says.

Secondly, you need to move the product though the supply chain, and S&OP is an effective technique to shape demand. “We need to identify it quickly and move it quickly because the quicker we get rid of it, the more we can maximize revenue.”

Third, you must understand the form and function of inventory and how they come together to have the right levels when and where you need it.

Cisco exemplifies a company that got it right in the recession. Very quickly its leaders saw the rate of change in the economy and were able to focus on the supply chain and “put their finger” on moving SLOB out.

Du Pont probably learned the most from the recession, Cecere says. “Once they identified [SLOB], they really moved on managing the inventory and mobilizing. You won’t catch them in that kind of situation again.”

Portrait of the Indispensable Supply
Chain Leader

No wonder there’s a skills gap among many Westerners about to enter the supply chain world, says Stan Fawcett, professor of global supply chain management at Georgia Southern University. They have not been trained to be experts at multiple disciplines and have little idea how to draw the best out of people. On the other hand, China and India are churning out graduates prepared for the supply chain transformation of the future.