Supply chain · 29 July 2016

Supply chains – The benefits of forecasting and replenishment technology

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A systemised forecasting solution is often essential to when managing complex supply chains

If we cast our minds back no more than twenty years, even for leading organisations, forecasting and replenishment activities existed, but often at a basic level.

Frequently, these activities occurred only within a larger commercial department, and as bit-parts within a wider role. Supply chain specialisation was yet to be truly born.

If we return to the present, we see a landscape where there are very few successful retail, wholesale or manufacturing businesses operating without a dedicated supply chain department and dedicated forecasting and replenishment professionals.

In line with the growth of the supply chain profile we have seen increased levels of complexity such as:

  • Sophisticated supply networks with multiple supply routes, stock detention points and customer channels
  • Increased pace of product innovation and “newness”
  • Raised consumer availability expectations
  • Greater than 50 per cent of promotional participation for some retailers leading to erratic demand patterns
  • The challenge of managing a returns flow that can be in the region of 40 per cent of shipped goods
  • Minimal lead times being used as a weapon of competitive advantage

However, with the typical benefits of a forecasting and replenishment change programme estimated at 1 to 4 per cent increase in turnover, 15 to 30 per cent reduction in inventory and 1 to ten per cent of operational expense, the opportunities are difficult to ignore.

The level of complexity and the size of the potential prize on offer has also changed the nature of the tools supporting today’s supply chains. A successfully implemented software solution manages the complexity in its stride and facilitates true business optimisation.

Successful supply chain system change

With the importance and complexity of the supply chain having never been so high, a systemised solution is often essential. The leading forecasting and software solutions provide excellent capabilities such as:

  • Intelligent forecast algorithm selection and supported demand history cleansing
  • Effective product life management concepts
  • Correlation of demand impacts from weather to social media activity
  • The incorporation of halo and cannibalisation impacts
  • Strategic service level definition, product segmentation and associated safety stock policies
  • Full modelling capabilities against complex supply networks

Almost all solutions now have powerful and effective user interfaces to put the information and controls at the fingertips of the supply chain user. However, it’s often not enough.

It’s often not enough, in the same way as buying someone a set of golf clubs isn’t necessarily going to make them the next Rory McIlroy.  Forecasting and replenishment technology is by its nature complicated and needs to be implemented into the organisation with greater care than just making sure the technology functionally operates.

The following are some of the key aspects of successful forecasting and replenishment software implementations that need to be considered and which can provide the vital difference between success and failure.

Create implementation balance

Find a balance between changing the business to fit the technology and modifying the software to meet the existing or desired business model

Resource the change correctly

The internal and external technology teams will be rightly focused on the challenges of successful software integration.  The supply chain operational team will be focused on the day-to-day business and may have limited experience of any large scale change activities. How will the project be resourced to succeed?

Ensure there is the capability to change and prosper

The benefits of the new system will only be unlocked by how the team adopt the change.  An assessment of the proposed future team development needs and structure should be undertaken and a clear people plan defined.  Recruitment for new skills and expertise in order to manage the system at a business level may be required.

Drive effective process adoption

Key barriers and influencers can be targeted in order to ease the change journey.  Bespoke process flows and training programmes should be developed to best suit the needs of the business.

Accelerate benefits realisation

As tempting as it is with a new software ‘toy box’, you don’t need to utilise the full system sophistication from day one.  Often the utilisation of the new system in its simplest form will drive 80% of the benefits.  It will also embed the new business processes and provide a solid foundation prior to further optimisation.

Make it stick

The most vulnerable time for deriving the success from a new system is the first six months of use.  During this period the change or project team are likely to have dis-banded and individuals are the most susceptible to adopting reasons to return to the previous methods.  Quality support has to be in place for the team along with a focus on KPI delivery and process consistency.

Make it great

As advised above, day one might be a fairly modest or conservative system implementation.  Most sophisticated supply chain solutions can be exploited well after the implementation is complete.  A culture of continuous optimisation needs to be put in place and the benefits enjoyed long after the initial change.

Simon Dixon is the managing director of supply chain and logistics advisors Hatmill

Read on to find out why smaller retailers find technology increasingly critical to acquiring new customers. 

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ABOUT THE EXPERT

Simon Dixon is the managing director of supply chain and logistics advisors Hatmill. He has worked in supply chain management for the past 19 years, both in industry and in consultancy. Simon's client experience includes the top four UK supermarkets and over 50 other clients spanning sectors such as construction and ecommerce.

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