RSR Research: Cooperation vs. Coercion
By Brian Kilcourse
Through a special arrangement, what follows is an excerpt of a current article from Retail Paradox, RSR Research’s weekly analysis on emerging issues facing retailers, presented here for discussion.
What stands in the way of retailers and manufacturers truly integrating their inter-corporate processes? According to André Martin, co-author of Flowcasting
the Retail Supply Chain and founder and CEO of Factory2shelf, the biggest hurdle is a “deep misunderstanding about what truly drives the retail supply chain.”
Mr. Martin said the partners must first clear up these misunderstandings or they will continue to seek solutions that don’t apply.
“When people don’t understand a problem, they seek complicated solutions,” he said. “Once they understand the problem, they realize that the solution is really straightforward.” Mr. Martin points to the fact that even after decades and billions of dollars spent on complicated technologies; the retail ecosystem is still clogged with huge inventory levels and a persistently slow turn rate.
So where does it go wrong? According to Mr. Martin, the answer is twofold: the wrong information is often used in forecasting demand in the first place, and there was not enough visibility into the entire chain to take quick corrective action when it was needed. By “the wrong information,” Mr. Marin means “aggregations,” and specifically, aggregations of demand data one or more levels up from where consumer demand is serviced- in the selling environment. “Aggregating hides inaccuracies, and it takes away your ability to look,” he says.
Mr. Martin advises a different approach. “Don’t forecast what you can calculate.”
Here’s how he explains it: a retailer typically generates both store-level and DC-level forecasts; the manufacturing partner will produce a forecast for its distribution network and another for its manufacturing plants. All four of these forecasts are performed independently of each other, using different units of measure (eaches, case pack, pallet, etc.) and often different time frames. At every step of the way, a different result is generated, and those differences create “friction” (inaccuracies that should be – but often aren’t – resolved). Mr. Martin suggests that if the retailer shared true demand data at the transactional level, that data could be used to calculate appropriate quantities at each point upstream in the supply chain. The result would be both better order quality and improved service levels, while reducing inventory in the pipeline. And to the extent that the data is made available daily, all the partners co-managing the chain can react to changing conditions at the store level.
I asked Mr. Martin how Factory2Shelf’s approach differs from or augments the VICS CPFR (Collaborative Planning, Forecasting, and Replenishment) process. Mr. Martin sees the “Flowcasting” process as taking CPFR to the next level by refining the current collaborative planning concept.
He explains: “With CPFR, retailers share information about what they think they will sell with their manufacturing partners. The information is aggregated for all the stores supported by a retail DC. Manufacturers take on the responsibility to replenish the retail DC’s after the partners agree on service level and inventory turn objectives and on what each DC will require. This is an excellent start but, by aggregating to the DC level, the partners miss a key ingredient – what is happening on a store-by-store basis. Flowcasting uses unaggregated store-level demand data.”
Discussion Question: Do you also think true collaboration between retailers and manufacturers is plagued by a “deep misunderstanding” over the ultimate drivers of the supply chain? What do you think of Mr. Martin’s ideas around the sharing of demand data to improve planning at various levels of the supply chain? What hurdles do you see over implementing such a process?