Tips to Better Manage Your Product Supply Chain

In today's market, growth tops the priority list for virtually all retailers. The path to growth may be driven by a search for new markets, increasing penetration in current markets, or increasing product selection by adding complementary products or sourcing other manufacturers and wholesalers that can supply remote markets more quickly and cost effectively. Regardless of the motivation, it's inevitable that when your business grows, so does the complexity of your supply chain.

Understand the Complexity
Retailers are at the end of the supply chain and, as a result, have both the benefit and, at times, the misfortune of dealing directly with the end consumer. Customer demands are increasing — they want your products to be better quality, cheaper and with more variety refreshed more often. And they want all of this delivered through an effortless customer experience. How do you ensure that your products are where they need to be, when they need to be there, to satisfy customer demands while keeping your margins up?

Retailers’ products are becoming increasingly global. Some are manufactured nearby, others halfway around the world. Retailers must align their supply chain so that it syncs the fulfillment of all of their products to make it on the shelf at the appropriate time. For products made nearby, it's easier to put quality controls in place and have shorter production lead times. These products must be coordinated with those that are outsourced or offshored, which have longer lead times and far less controllable life cycles, and where sourcing decisions have to be made with less certainty of demand.

Today's supply chains are inherently more intricate due to a variety of factors, most importantly the following:

• More supply uncertainty: As retailers start working with new offshore suppliers, they lose visibility into their own supply chain. They may be kept in the dark about where raw materials come from and whether the supplier meets all safety and ethical guidelines. In addition, it's hard to tell how important any particular retailer is to the supplier's long-term strategy. Does the supplier have other clients that could distract it from delivering on your needs? Large retailers have their pick of the litter when it comes to sourcing; midsized retailers may not. And if you're not careful, you can find yourself dealing with major headaches like IP theft.
• More quality control problems: How do you translate your requirements to ensure that you and your suppliers are on the same page? How do you make sure that your suppliers are ready and able to meet your demands before a long and expensive shipping process has begun? The unforeseen costs and delays of returning faulty goods and waiting for new inventory could cause you to miss your launch time for seasonal items.
• More investment in technology: Better information and better collaboration tools are vital to shrink your timeline across all of the links in your supply chain. Cloud databases, collaborative logistics processes, information sharing (e.g., forecast, inventory level, production capacity availability, order status, sales, product development and launch calendar), videoconferencing resources and other telepresence packages will enhance communication between you and your suppliers, and even help you compensate for longer lead times in manufacturing and delivery.

Manage the Complexity
Once you have a grasp on these overarching complexities, how do you manage them? One of the key pieces of the puzzle is a better handle on demand planning. The more accurately you can forecast future demand, the more you can align your supply chain to minimize the effect of shortage (lost sales) or excess inventory (which forces discounting of merchandise).

Demand planning tools have been available for some time; however, more organizations are starting to realize that "guessing" the future based on hopes (buyers wanting to meet their performance targets) or some historical backward look (financial people looking at past performance as predictors of the future) isn't cutting it. Successful adoption of demand planning requires a combination of the right technology, the right knowledge and the discipline to use the information through a collaborative process (such as an S&OP process).

This multipronged strategy makes the difference between a leading organization that will maximize its growth and profitability and a laggard that will continue to feel the effects of squeezed margins and shrinking market share. Leaders will show lower inventory levels, fewer lost sales (increasing revenue), reduced markdowns and lower product costs, with all of this adding up to 5 percent of net margins to their bottom line.

Yves Belanger is a director in West Monroe Partners’ Operations Excellence practice. He can be reached at ybelanger@westmonroepartners.com.