Part 2: How retailers can leverage PLM to enhance their sourcing processes
Written by Joydeep Sengupta, Global Practice Head - Retail Consulting for Consumer Products, Hard Goods and Retail, and Hardeep Singh Garewal, President – Europe, ITC Infotech
Supplier selection and on-boarding :
The process of selecting a group of competent suppliers for products and materials, can potentially impact a retailer’s competitive advantage. Hence, supplier evaluation and selection are vital aspects in the performance of global sourcing. The costs involved in identifying, selecting, and evaluating a global expanse of foreign suppliers can be prohibitive. it is critical for businesses to develop and follow systematic parametric criteria’s to select a dependable supplier. PLM helps retailers in their supplier management process by capturing the profile of each supplier to identify a supplier’s capabilities based on critical parameters like capability, quality, cost, capacity- financial and manufacturing, certifications, location, product and process technologies, order cycle time, etc. in ensuring reliability and service.
Supplier compliance and performance analysis :
Increasing pressures from consumers and human rights organizations and government legislations have put pressure on retailers to source products manufactured in factories, which do not employ child labour, maintain safety norms and good working conditions, environment friendly and maintain adequate processes and employ preventive measures to keep shipments from being used for terrorist purposes. Retail companies today have a heightened focus on due diligence in vendor selection to manage social, ethical and environmental risks throughout their supply chains. Further,to continuously improve sourcing efficiency, product reliability and reduce sourcing cost, it is critical to create a strong network of sustained high performance suppliers against set criteria.a PLM system, not only facilitates an integrated audit process to manage supplier manufacturing compliance based on social, environmental and c-TPAT compliance, but also analyzes its performance (sample adoption ratio, cost comparisons to other suppliers, on-time delivery and return rates). On the basis of the audits performed, PLM generates a supplier scorecard to help retailers decide whether or not the retailer should continue sourcing new products from that supplier.
Request for quotation process and sample tracking :
A major activity in a retailer’s sourcing process, is the management of the RFQ (request for quote) activity. It is critical to provide the merchandiser with the right merchandise, at the right time, in the right quantities and at the right price. With shrinking buying cycles it is becoming difficult to manage thousands of products for multiple cycles at the same time. PLM digitally transforms the whole process of product sourcing and retail buying andmakes the RFQ process much more agile and efficient. By using the data available in the PLM, retailers can easily search for suppliers capable of making the products as per required product needs, send RFQs to multiple suppliers, receive, compare and evaluate photo quotes from different suppliers. Makes it easy to choose the right suppliers, request for samples, track samples, communicate, collaborate and negotiate the right product and features at best prices.
Competitive pressures have forced retail companies to look for sourcing globally. today, most retailers are exploring the world for lower landed costs. it comes with the risk from cross-border transaction like currency variations, exchange rate fluctuations, regulatory and import costs, transport and shipment costs, other hidden costs and the risks of delivery delays and compliance. Hence, it becomes vital for retail companies to bake in the above nuances into their costing while evaluating and negotiating costs with suppliers. PLM enables companies to calculate end to end costing including regulatory overheads, import and shipment costs, and do rationalized cost comparisons between multi-currency supplier quotes, helping them to negotiate their costs better.
Product compliance andquality management process :
Though the costs of maintaining compliant products are very high, the outlays of non-compliance are even higher. Non-compliant products not only lead to legal actions, but also result in lost customers, decreased revenue and barring from competitive markets. PLM manages the testing process in collaboration with 3rd party testing labs and maintains all compliance related documents in one place and provides suppliers with easy access to this data, facilitating the compliance process. PLM gives retailers visibility to product non-conformance, better mitigate quality risksandenables them to enhance their quality management processes.
Central repository of most updated product and related data :
most errors, delays, and lapses in the product development and selection process leads to increased costs, quality issues, lost sales and inventory build ups. These are more often than not due to missed mails, iterations and lack of visibility to optimum information. PLM brings all stakeholders - internal as well as external, from merchandisers and buyers, product development, quality, designers to sourcing and suppliers, on the same page. PLM provides a central repository of most updated, version controlled single version of truth with a communication tool that records all communications that simplifies a complex process.
Real time collaboration :
Communicating through mails or updating data on multiple systems can lead to costly errors. To source the right merchandise, within the planned time, in the right quantities, and at the right price requires continuous collaboration on critical decisions in the sourcing cycle. Speeding up the process, requires real-time collaboration between internal as well as external stakeholders, particularly when participants are geographically dispersed. PLM gives a single, access controlled platform for all stakeholders to participate real – time in the sourcing process, right from creating product data, RFQs, sample tracking, evaluating photo quotes and options, supplier selection, cost comparison and negotiation to SKU finalization and forecasts. With authorizations provided by the retailers, suppliers can access, update their product information, have visibility and align their tasks to the retailer’s calendar timelines they own.
Calendar management and visibility :
Merchandise delivery delays result in loss of sales as well as inventory cost build ups. the absence of proper assortment on the shelves can have a huge indirect impact on customer walk-ins. with reducing cycle times, increasing seasonal trends, cross continent shipments from far-east, risks of delivery failures are extremely high. PLM provides end-to-end visibility and works as a close monitoring of planned activities, milestones against timelines from planning to execution.
Plan variance tying planning to execution :
The sheer number of products being sourced could lead to over commitment in the rush to get the best deals. Buying spends become lopsided with inadequate selling stock of some product types, or excessive spends on some products resulting in markdowns that yield lower than desired sales and profits. while planning provides direction and serves as a basis for merchandise sourcing, product planning loops in most updated estimated numbers from operations and plan variance report gives buyers, merchandisers and the sourcing teams real-time visibility to OTB (open to buy) and forward planning.
Retailers are currently facing a lot of challenges, making it essential that they have an integrated technology in place to cope with the sourcing challenges of an ever-changing industry, handling a multitude of product categories and sourcing models.
While PLM, in the past, was primarily applicable only to the design and engineering phases of product development, it’s now widely considered to be a critical system across the entire value chain - from planning to execution. PLM eliminates boundaries existing between different departments by connecting people, data, processes and business systems in the product lifecycle process. It allows retailers to harmonize their decisions at each step of the product lifecycle, resulting in a more agile, profitable and efficient process, with fewer product failures or reworks and desired business success.
The companies that have successfully integrated their product development and sourcing processes have gained various business benefits, including:
· faster time to market
· better agility and responsiveness to market changes
· increased operational efficiencies
· lower risks
· lower overall product costs
· higher margins
· excellent financial performance at each stage in the chain