Align strategy with merchandise lifecycle plans to succeed
Any attempt to apply ‘lean’ thinking to a manufacturer or retailer’s supply chain must have merchandise life cycle plans in alignment with supply chain strategy to succeed, according to the Vice President of Strategic Services at software company JDA.
Steve Davis of the American software and consulting company JDA, which specialises in supply chain management, likes to make sure that companies he deals with apply the lean process to the merchandising planning process, all the way from the very beginning.
Lean, the production practice that considers the expenditure of resources on anything other than the creation of value for end customers as wasteful, has been taken up by companies across the globe since it was developed out of the Toyota Production System of the mid-20th Century and began preserving value with less work.
But for Davis, if a company does not have a merchandising planning process and product lifecycle plans in alignment with its particular supply chain model, all it will end up with is a more agile supply chain that will only serve to back merchandise into stores.
Davis said: “A good example is the Zara high street retail brand model of ‘fast fashion’, an eight-week supply chain, that sort of thing.
“If they don’t have a merchandise planning process, and an assortment or ranging planning process that is in alignment with that, and that they don’t have lifecycles of their products that are in alignment with that, all they are going to end up doing is having a more agile supply chain that is going to just backup merchandise into the stores.
“That is not a completely lean supply chain, because it just means everything flows down. It ends up looking like flooding damage!”
For Davis and his JDA colleagues, the very definition of supply chain has changed.
This is another thing that they feel strongly about with relation to the process of leaning out a supply chain; that the process no longer ends at the store shelf, but in the customer’s hands.
There are now many different ways in which a customer can procure products from a retailer and with the advent of online retail comes the ‘click and collect’ culture, where deliveries are made straight to homes.
This means that ‘the last mile’ and the final step into the customer’s hands, all now have to be a part of the supply chain.
“If you are really going to work on leaning out the entire supply chain, you need to look at efficiencies all the way through,” said Davis.
“With the different ways a retailer now provides product to the customer, it is putting tremendous pressure on merchants’ planning need to plan for that, because it affects the life cycle of the product, it affects the time that different channels might offer product to the customers at different time frames.”
It is also, said Davis, affected tremendously by the modern customer’s expectations of what service they can expect.
He said: “If 10 years ago you walked into a store and they didn’t have something, you might comeback in a couple of weeks in the hope that they will, or if you saw it in the store but didn’t buy it and then when you returned a week later and it was gone, you figured ‘well, that was kind of my fault’.
“But today, if you go online and you know there is something from a retailer you want, but they don’t have it in stock when you go to purchase, your impression of that retailer’s standing is affected, and you might Tweet about it or put it on Facebook (meaning bad publicity).
“So the expectations of new customers have had a dramatic effect, not only on the product selection, but also the supply chain to that customer.”
An example Davis gives when talking about starting at the very beginning of the merchandise planning cycle, is that of a fashion retailer with a women’s spring collection.
This retailer needs to understand what number of pieces is wanted for the lifecycle it has and, said Davis, should align the purchase of the clothing collection with its specific supply chain strategy.
This strategy should ideally provide for delivery to each of the different channel outlets that are required, and at times that are most efficient times for those varied outlets.
The collection might be led by an advert on the internet a week before it arrives into the store, whipping up online interest. The retailer will have different supply chain needs to make the goods available to those channels faster or in a different time frame.
A specific retailer that Davis cites as an example is Chico’s women’s clothing in Florida, US.
He said: “Chico’s has done a very good job of managing all their different collections, because they are very collection driven they have a very short lifecycle on them, so they have got a tremendous amount of what looks like churn but they have done a very good job of managing that, over the lifecycle of all their different products.”
NTT DATA Services, Remodelling Supply Chains for Resilience
Joey Dean, the man with the coolest name ever and Managing Director in the healthcare consulting practice for NTT DATA and is focused on delivering workplace transformation and enabling the future workforce for healthcare providers. Dean also leads client innovation programs to enhance service delivery and business outcomes for clients.
The pandemic has shifted priorities and created opportunities to do things differently, and companies are now looking to build more resilient supply chains, none needed more urgently than those within the healthcare system. Dean shares with us how he feels they can get there.
A Multi-Vendor Sourcing Approach
“Healthcare systems cannot afford delays in the supply chain when there are lives at stake. Healthcare procurement teams are looking at multi-vendor sourcing strategies, stockpiling more inventory, and ways to use data and AI to have a predictive view into the future and drive greater efficiency.
“The priority should be to shore up procurement channels and re-evaluate inventory management norms, i.e. stockpiling for assurance. Health systems should take the opportunity to renegotiate with their current vendors and broaden the supplier channel. Through those efforts, work with suppliers that have greater geographic diversity and transparency around manufacturing data, process, and continuity plans,” says Dean.
But here ensues the never-ending battle of domestic vs global supply chains. As I see it, domestic sourcing limits the high-risk exposure related to offshore sourcing— Canada’s issue with importing the vaccine is a good example of that. So, of course, I had to ask, for lifesaving products, is building domestic capabilities an option that is being considered?
“Domestic supply chains are sparse or have a high dependence on overseas centres for parts and raw materials. There are measures being discussed from a legislative perspective to drive more domestic sourcing, and there will need to be a concerted effort by Western countries through a mix of investments and financial incentives,” Dean explains.
Wielding Big Tech for Better Outcomes
So, that’s a long way off. In the meantime, leveraging technology is another way to mitigate the risks that lie within global supply chains while decreasing costs and improving quality. Dean expands on the potential of blockchain and AI in the industry.
“Blockchain is particularly interesting in creating more transparency and visibility across all supply chain activities. Organisations can create a decentralised record of all transactions to track assets from production to delivery or use by end-user. This increased supply chain transparency provides more visibility to both buyers and suppliers to resolve disputes and build more trusting relationships. Another benefit is that the validation of data is more efficient to prioritise time on the delivery of goods and services to reduce cost and improve quality.
“Artificial Intelligence and Machine Learning (AI/ML) is another area where there’s incredible value in processing massive amounts of data to aggregate and normalise the data to produce proactive recommendations on actions to improve the speed and cost-efficiency of the supply chain.”
Evolving Procurement Models
From asking more of suppliers to beefing up stocks, Dean believes procurement models should be remodelled to favour resilience, mitigate risk and ensure the needs of the customer are kept in view.
“The bottom line is that healthcare systems are expecting more from their suppliers. While transactional approaches focused solely on price and transactions have been the norm, collaborative relationships, where the buyer and supplier establish mutual objectives and outcomes, drives a trusting and transparent relationship. Healthcare systems are also looking to multi-vendor strategies to mitigate risk, so it is imperative for suppliers to stand out and embrace evolving procurement models.
“Healthcare systems are looking at partners that can establish domestic centres for supplies to mitigate the risks of having ‘all of their eggs’ in overseas locations. Suppliers should look to perform a strategic evaluation review that includes a distribution network analysis and distribution footprint review to understand cost, service, flexibility, and risks. Included in that strategy should be a “voice of the customer” assessment to understand current pain points and needs of customers.”
“Healthcare supply chain leaders are re-evaluating the Just In Time (JIT) model with supplies delivered on a regular basis. The approach does not require an investment in infrastructure but leaves organisations open to risk of disruption. Having domestic centres and warehousing from suppliers gives healthcare systems the ability to have inventory on hand without having to invest in their own infrastructure. Also, in the spirit of transparency, having predictive views into inventory levels can help enable better decision making from both sides.”
But, again, I had to ask, what about the risks and associated costs that come with higher inventory levels, such as expired product if there isn’t fast enough turnover, tying up cash flow, warehousing and inventory management costs?
“In the current supply chain environment, it is advisable for buyers to carry an in-house inventory on a just-in-time basis, while suppliers take a just-in-case approach, preserving capacity for surges, retaining safety stock, and building rapid replenishment channels for restock. But the risk of expired product is very real. This could be curbed with better data intelligence and improved technology that could forecast surges and predictively automate future supply needs. In this way, ordering would be more data-driven and rationalised to align with anticipated surges. Further adoption of data and intelligence and will be crucial for modernised buying in the new normal.
These are tough tasks, so I asked Dean to speak to some of the challenges. Luckily, he’s a patient guy with a lot to say.
On managing stakeholders and ensuring alignment on priorities and objectives, Dean says, “In order for managing stakeholders to stay aligned on priorities, they’ll need more transparency and collaborative win-win business relationships in which both healthcare systems and medical device manufacturers are equally committed to each other’s success. On the healthcare side, they need to understand where parts and products are manufactured to perform more predictive data and analytics for forecasting and planning efforts. And the manufacturers should offer more data transparency which will result in better planning and forecasting to navigate the ebbs and flows and enable better decision-making by healthcare systems.
Due to the sensitive nature of the information being requested, the effort to increase visibility is typically met with a lot of reluctance and push back. Dean essentially puts the onus back on suppliers to get with the times. “Traditionally, the relationships between buyers and suppliers are transactional, based only on the transaction between the two parties: what is the supplier providing, at what cost, and for what length of time. The relationship begins and ends there. The tide is shifting, and buyers expect more from their suppliers, especially given what the pandemic exposed around the fragility of the supply chain. The suppliers that get ahead of this will not only reap the benefits of improved relationships, but they will be able to take action on insights derived from greater visibility to manage risks more effectively.”
He offers a final tip. “A first step in enabling a supply chain data exchange is to make sure partners and buyers are aware of the conditions throughout the supply chain based on real-time data to enable predictive views into delays and disruptions. With well understand data sets, both parties can respond more effectively and work together when disruptions occur.”
As for where supply chain is heading, Dean says, “Moving forward, we’ll continue to see a shift toward Robotic Process Automation (RPA), Artificial Intelligence (AI), and advanced analytics to optimise the supply chain. The pandemic, as it has done in many other industries, will accelerate the move to digital, with the benefits of improving efficiency, visibility, and error rate. AI can consume enormous amounts of data to drive real-time pattern detection and mitigate risk from global disruptive events.”