Taking stock of business

The technologies available may be increasingly advanced, the business imperative to get it right may be more apparent than ever before and the world may indeed be getting smaller ­ figuratively, of course ­ but creating the perfect supply chain, it would appear, is getting a whole lot harder with every passing year.

The blame seems to rest with consumers. They want more things to choose from, they want their goods cheaper and they also have the temerity to want to choose whether to buy in-store, over the phone or online.

For Argos supply chain director, Steve Melton, the task facing contemporary retailers is considerable. Increased price competition, the outsourcing of production to the Far East ­ in order to produce things more cheaply ­ and the nature of selling across multiple channels have presented him and his peers with a series of headaches. “Maintaining consistency in pricing, product information, availability and after-sales support is one of the great challenges of running a multi-channel supply chain,” he says.

“We have seen terrific growth in customer choice. In our 2000 spring/summer catalogue, we had 7,700 lines. There are now more than 18,000, including our Argos Extra range. Over that time the footprint of many of our stores has not really changed. This means that we have had to learn to work our stockrooms harder and respond more quickly with replenishment.”

The added complexity of sourcing much of its product line from the Far East has undoubtedly driven down costs, but has also thrown a few spanners into the firm’s supply chain works. “Our drive towards more effective sourcing to support better value for customers means that we have increased the proportion of our product that we import directly,” says Melton. “This has lengthened our supply chain in many cases and increased lead times, potentially requiring more stock and a bigger focus on stock management.”

Without giving too much away, Melton makes it clear that Argos has started turning the screws to secure better supply chain efficiencies. “We have been working with these key suppliers, particularly those in the Far East, to reduce order quantities and reduce lead times,” he says.

Argos is not alone in having to confront the challenge of managing a supply chain that now produces cheaper goods, but in a more convoluted fashion than in previous years. The world may indeed be getting smaller, but it is still a long way to Malaysia, a point Tim Paine, research director, supply chain management for Europe at analyst Gartner, reckons has caught a number of companies out.

“The move to outsourcing and contract manufacturing in the Far East has seen some companies finding that they have taken a few steps backwards in terms of visibility and control of their supply chain,” he says. “So having previously owned their own factories in Europe and gradually got a handle on their supply chain and implemented better process disciplines into their own systems, they have suddenly gone back to saying: ‘Well now I need more supply chain visibility and solutions that help me get more of a view about what’s happening in my supply base’.

“They’ve got this increasing volatility in terms of the demand side as customers become more aware, and the potential for them to switch between one product and another is ever greater; while on the supply side the process has become lengthened and there is greater variability in terms of the time it takes for products to come though some of the factories.”

Time for RFID

Part of the Argos response has been to invest in technology. It has recently implemented radio frequency identification (RFID) tagging to provide visibility into containers at ports and enable the retailer to link up with freight companies to increase awareness of where shipments are within the supply chain. The tracking technology enables the business to determine which containers it needs to put at the front of the supply network, linked up with a sense-and-respond system automatically connecting container decision making with shortages in Argos’ 540-plus UK stores.

RFID remains a costly prospect for most retailers, though. WE International is a Dutch-owned fashion retailer with five divisions across six European markets, having recently added adventure clothing wholesaler O’Neils to its roster. IT director Roel Brand says his company has explored RFID technology, but has yet to buy into it because of the expense.

“We don’t currently use it at all,” he says. “We had a pilot a couple of years ago and made some calculations that the price had to go down to a certain level. I personally am convinced we should start getting involved in RFID next year, in another pilot, one way or the other. The success stories from other retailers, including Marks & Spencer, is one reason for this.

“We see having the ability at item level to know immediately exactly what’s on the selling floor as adding to the bottom-line results. Of course, that will start with only the more expensive ticket items, but over the years the prices will come down for
the technology, so that we can put it into T-shirts as well.”

WE International is already heavily committed to exploiting technology in supply chain management, with kit already in place from i2 Technology, Viva Cadena and Micro Strategy, all now integral to how the company is looking to drive down costs and increase response times from its supply chain.

Do not let us get carried away that supply chain innovation ­ or even attempted innovation ­ is now holding sway across the corporate sector, as effective supply chain management is ludicrously distant for some. Teresa Jones, senior analyst at Butler Gro up, says people remain one of the biggest inhibitors to supply chain efficiencies. She in part attributes the use of RFID technology by the likes of Argos and Marks & Spencer to the need to take people ­ pesky, inconsistent and truculent people ­ out of the loop altogether and reckons too few businesses have followed suit.

“It comes down to the way that people work and the way they handle information, which I think remains one of the real challenges for a supply chain,” she says. “You might have this accurate and shared data, but you have still got to have people able to act on the information they’ve got and to feel that using it is useful and worthwhile. A lot of the time people aren’t bothered, they’re there to move things from one place to another and couldn’t care less about putting information into a computer terminal. So if you can get a chip to do that for you, then the big strong person who is good at moving things around the warehouse can just do that, without further challenging expectations.”

Letting go

WE International’s Brand says technology leaders charged with using high-end technology face an inner turmoil in letting go. He points to his company’s use of Viva Cadena software, an automated stock replenishment tool, for solid evidence of the perils of the person factor.

“The system automatically proposes a replenishment volume,” he says. “We have been able to analyse every time a user decides to deviate from the proposal given by Viva Cadena, by manually adjusting the replenishment level, and we have seen two things: first, the quality of the decision a person took was poorer than Viva Cadena proposed; and second, it led to relatively large inefficiencies because they were spending an hour changing one replenishment graph. So where we were trying to implement systems that would automate a lot of straightforward calculating tasks, we discovered that people found it difficult to trust the system.”

Old habits certainly seem to die hard, even among some of the biggest corporate names. Take the UK pub trade, dominated by three titans, Coors, Scottish and Newcastle and InBev. For Paul Harbottle, chief operating officer at UK pub chain JD Wetherspoon, the process of beer ordering for his fast-growing chain remains as arduous as when the company opened its first pub back in 1979. “One thing about the pub trade and its supply chain is that it generally works Monday to Friday, with no beer deliveries at the weekend. When the beer industry talks about day one to day two ordering, that’s fine as long as it’s a week-day; so if I order on a Friday, I don’t get it until Tuesday. In my book, that’s day one to day five,” he says.

And even when the beer is ordered, the absence of technological input is palpable. “The pub trade is quite manual, involving phone calls to pubs to place orders. There’s no demand forecast planning or vendor-managed inventory; none of that really exists in the pub trade, although it would be useful if it did,” says Harbottle.
“They [the three major breweries] would argue that it’s stalled by the pub industry, not by them. They clearly have the technical ability, but it is traditional that the landlord of the pub gets a phone call to ask what beer he wants, and they struggle with that being done automatically.”

Nobody’s immune

The commercial behemoths that are the UK’s leading supermarket chains are not immune from criticism either. And Tim Payne, research director at analyst Gartner, says supply chain management is still an issue for the retail sector. “Retailers had a lot of their own systems and solutions and did a lot of in-house development, so they are in a phase where they are looking at modernisation, new technologies and replacing homegrown solutions. It’s always surprising when you talk to some retailers, as some quite big players still do all their forecasting and planning in Excel spreadsheets,” he says.

“Many are saying that their in-house systems are all a bit fragmented and departmentalised, and that they need to knit them together more effectively and need more integration from the front end through to the back end, and require the technology to enable that.”

Payne’s prescription swiftly zips from tailored enterprise resource planning (ERP) systems to more progressive concepts, with service-oriented architecture (SOA) high on his list of must-haves for 2015 ­ or before for organisations in the vanguard. Enabling different services within a supply chain management system to interact in a modularised, interchangeable way offers the best approach, he insists, of enabling the modern business to keep pace with the multi-channel, multi-supplier corporate workload of today.

“SOA ensures exactly the same name for everything: it’s about understanding that you need capability in there to semantically reconcile information, and that there are different parts of the applications and processes that you need to plug into,” he says.

“It is a means of avoiding what we call swivel-chair integration, where a planner has to sit on their chair with one system and then swivel round to log on to another just to do a bit elsewhere, as no part of the system can talk with the other. This concept of process-agility through the technology of SOA and the business process platform is all about being able to say: ‘I’ve got a business strategy or separate business strategies in many cases ­ online sales as well as customer-facing, for example ­ I need to have a different supply chain strategy in place to cope with that.’ This is going to become a key differentiator for supply chain leaders.”

Swivel into the future

Swivel-chair integration might not be the exact words that Roel Brand of WE International would choose to use ­ but the sentiment is similar, as he projects his vision of the five years to come. “Point of sale is very important, and what you will see is retailers moving to an online situation with their sales tills, so you can process sales transactions whenever you want and it becomes real time,” he says.

“The second thing is your merchandising management system. I don’t think there is a lot going on there, but you will have things happen within your merchandise management system within ERP. SOA is for me certainly the biggest thing, however. You want that ERP system to be completely SOA-compliant or to have some sort of enterprise service bus, because the real challenge is to have the analytical models for mark down, price optimisation, replenishment optimisation and forecasting ­ you want all of them to link into the merchandising system for the business execution.”

The consumer wants what the consumer gets, so the Brand vision looks set to be played out in the coming years as more corporates join the fray, doing what they can to provide a wealth of products to choose from, at low cost, across multiple sales channels.

Nobody said it would be easy though, so do not be surprised if the customer compiles a few new demands as the business ramps up to meet today’s requirements. Creating the perfect supply chain looks set to remain a moving target.

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