Technology makes retail supply chain networks more effective

Visibility and traceability moved on from mere buzzwords to become watchwords for logisticians some time ago. Gerrit-Jan Steenbergen, Vice President for Innovation and Competence Centres at Zetes Group ­considers the reasons why this change has occurred. Since the 1980s until 2008, rises in the transportation of goods mirrored economic growth, with 75 per cent of movement occurring in Europe. The recession brought a decline of 10-12 per cent in early 2009, but this has stabilised and experts anticipate transportation levels will return to 2008 levels this year.

Improved availability of online networks is also contributing to traceability and visibility expectations. In the first half of 2010, over 315 million smart phones were sold, up 50 per cent on 2009 levels.

Another trend is the changing expectation for traceability. Now, consumers want information on the origin of their products, raw materials and product components. And they expect better overall product quality. Simply having products available is no longer enough as discerning consumers look ‘behind the brand’ to make decisions.

Environmental concerns also have an influence. Green initiatives seeking to improve utilisation of warehouse, freezer and truck space are widespread, spurred by both a desire to do good and cut operational costs.

For suppliers, there is demand for traceability to drive logistics efficiency, quality and visibility. ‘Always on-line’ information creates an early warning system to reduce out-of-stocks, shrinkage or delivery problems and more targeted recalls.

Overall, the emphasis on improving the customer experience using technology while seeking to cut operational costs is a trend across Europe. Retailers already invest in self-service scanning, self-checkout, smart shelf labelling or queue busting systems.

Supply chain to demand pull

Increasing customer influence has transformed the traditional supply chain model from a ‘push’ to a ‘pull’ channel with the customer in control. Companies like Nike are allowing customers to customise shoes.

This re-emphasises the right product, right place, right time, right price mix. Balance requires a dynamic interaction between information and physical flows to ensure customer demands are met with just the right amount of stock. Decisions over which technology to use e.g. RFID, traditional barcodes or imaging, are mostly driven by a cost/benefit analysis and ease of integration to existing systems.

Why is visibility important for a networked supply chain? One reason is flexibility. No longer can goods only be returned to the store of purchase. Customers can choose to buy online and collect from a local store, or buy from one store and return to another.

Another reason is forecasting. This can be expensive and will not necessarily yield the corresponding value invested, especially for smaller retailers with smaller amounts of capital tied up in stock. Regardless of a retailer’s size, data accuracy remains the biggest issue. Whilst technology is driving better choice of the correct algorithms to produce a more reliable forecast, performance can only be as good as the underlying data. As an alternative to planning from forecasts, ‘visible’ networks can be built based on the ability to supply according to previous activity creating a 100 per cent demand driven supply network.

For example, Vendor Managed Inventory systems (VMIs) are straightforward to introduce where the vendor is completely responsible for the product, has direct access to the retailer’s systems to monitor sales or stock levels and then creates replenishment orders based on demand, stock levels and existing inbound purchase orders. Because the vendor is provided with direct access to real time data generated via picking or replenishment requests, this can be a more accurate method. Working this way can reduce inventory levels and eliminate out of stocks, reducing costs for the retailer.

Manufacturer Vs customer driven

Many manufacturers are increasingly operating retailer and customer led promotions in which the promotion is tailored according to the preferences or shopping habits of the local clientele. And in return for co-operating and supplying the manufacturer with sales data, the retailer benefits with discounted stock prices. Alternatively, manufacturer and retailer work in partnership based on anticipated demand. For example, after Kate Middleton wore a navy dress on her engagement to Prince William, clothing suppliers to Tesco were fast to react with a near identical garment available in their stores within days.

Adding value Vs cost-reduction

Cutting costs used to be the motivation behind investment in the supply chain but in the future, the emphasis needs to be on delivering added value to customer groups. Retailers are starting to understand customers buying premium products value traceability information verifying the origin and quality of their goods above just looking for the lowest cost products.

‘Always on-line’ visible supply

Traditional barcodes are still used for identification of products but slowly, interest in serialised packaging is creating applications for the 2D barcode.

To reduce time to market, many European retailers implemented voice picking and are expanding their use of voice directed working in the warehouse. Smaller, specialised retailers are following suit, with ‘out of the-box’ voice solutions that are quick to implement with an investment payback.

Unlike voice, RFID is still not a mass-market technology and among luxury retailers, is mainly used for tracking returnable assets or to prevent counterfeiting. Internet shopping has brought increased demand for proof of delivery systems, and now, a newer market for ‘payment on delivery’ alternatives. Some retailers have created innovative applications for RFID in the store. Prada has created an RFID based personal shopping experience in which customers in the fitting rooms see the garments they select being modeled on the catwalk. The RFID tags on each garment trigger the automatic selection of different pre-loaded videos.

Picking a technology is the easy part. More challenging is enabling the retailers, suppliers and other network members to use technology to operate effective supply chain networks.

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