Software helps manufacturers meet the demands of mass merchants
With consumers searching for lower prices, larger selection, and greater convenience, Wal-Mart and other mass merchants are firmly in the driver's seat, often leaving food manufacturers scrambling for a piece of the action.
Competition to sell to mass merchants is so fierce that another manufacturer is often waiting in the wings to take the place of suppliers who falter.
The complexity of today's food chain coupled with ever tightening production margins has rendered many of the old data gathering tools inadequate. Increasingly, manufacturers are putting software to work to give them the edge needed to keep both the mass merchant and the consuming public happy.
Manufacturers traditionally relied on data from research companies, such as ACNielsen or IRI, to organize and analyze market data. But in recent years many mass merchants have barred such services from access to their detailed sales data for proprietary reasons.
The move, while protecting the mass merchant, also hinders the manufacturer who still must find a way to monitor and forecast inventory movement.
"What it comes down to is if a manufacturer, whether it be a $50 million company or a $10 billion company, doesn't have the right set of analytics, it simply can't satisfy the mass merchants," according to Mike Hennel, president of Silvon Software, (Westmont, IL).
Recognizing the challenge to suppliers, many mass merchants provide manufacturers with access to point-of-sale information. For example, Wal-Mart uses its online "Retail Link" to facilitate data sharing with its suppliers.
Manufacturers can then leverage this point-of-sale data to get more shelf space and to coordinate promotions, pricing and product mix with their distributors. They can also use the data to forecast consumer pull, thus better anticipating reorders and understanding the cycle used by mass merchants in placing orders.
Mass merchants, though powerful, often still leave it up to manufacturers to interpret point-of-sale data. To properly deal with today's complex food distribution and supply scheme, many manufacturers have turned to software options.
Silvon's Stratum™ software, for example, brings in the point-of-sale data - what has been sold each day at each location - and compares it with shipment data, thus giving manufacturers an accurate count of remaining inventory. The software also supplies tools needed to explore why items didn't sell. Overall, this allows the manufacturer to be more proactive in its quest to prove how well it is meeting the needs of the mass merchant.
"Our software allows mass merchants and manufacturers to collaborate on how to improve future performance," Hennel said.
Such collaboration can help the mass merchant become aware of a manufacturer's order fill rates, helping the merchant calculate the manufacturer's perfect inventory score. It also gives the manufacturer the opportunity to use the data to explain any inconsistencies that arise surrounding inventory levels and on-time shipments. For example, if a mass merchant claims something was out of stock, the manufacturer will have the ability to go back, check their records, and possibly prove that the correct number of items was shipped at the correct time. This may be viewed as an important feature, as the burden of proof often falls on the manufacturer.
While processing point-of-sale data, many manufacturers are also taking steps to move away from other aging methods of data organization, such as excel spreadsheets. "Trying to do this off spreadsheets is like flying blind," according to Hennel.
Implementing a software system in place of a manual or simplistic excel system may seem more than a little intimidating to the average manufacturer. However, software companies are aware of the potential woes of manufacturers and have responded with systems that attempt to ease the transition.
Demantra (Waltham, MA), for example, has created a flexible data model. Demantra's software can be adjusted to fit existing company systems. In a situation where point of sale data needs to be organized, the software can take various types of data streams and display them all in one worksheet. A model that replicates excel spreadsheets can be implemented in about 90 days, for example. Though not really pushing the limits of the software's abilities, such a system would still be familiar to its users, thus drastically reducing time lost while adjusting to a new system.
Demand-Driven Supply Chain
Of course, inventory problems aren't always the fault of mishandled or disorganized data. For example, a manufacturer may decide to advertise an exciting new kind of cereal on a radio show. Customers hear the commercial and rush to their local Costco to buy it. Shortly afterward, Costco sells out of the cereal and customers begin complaining. Their anger may be directed at Costco even though Costco, unaware of the radio advertising campaign, could not have anticipated the rush.
This problem goes beyond s simple lack of inventory. The problem, faced by many manufacturers, is a lack of coordination of inventory management and marketing campaigns. As John Bermudez, vice president of product marketing at Demantra, explained, "These problems can't be solved by simply having more inventory sitting around-especially in the food industry where we are dealing with perishable goods."
A solution may be found in a relatively new concept called the demand-driven supply chain. The goal of this concept, in its most basic form, is to synchronize marketing and production. This synchronization will increase the manufacturers' ability to react to changing demands, thus leading to well stocked mass merchants and satisfied customers. Implementing a demand-driven supply chain at your facility requires collaborating, organizing and analyzing data from numerous different sources, and then using this data to forecast trends.
Demantra Spectrum® is a software system that operates on the concept of the demand-driven supply chain. The software, a planning and promotional management system integrated with the supply chain and distribution, is purposed to deliver the best possible demand visibility, which in turn may lead to better forecasting and higher sales. Users can marry forecast technology with the real time information supplied to them by mass merchants, and then compare it to what they had anticipated would occur.
Meeting Government Regulations
With the implementation of the Bioterrorism Response Act, tracking products through the supply chain has also become a priority in the industry. Mass merchants, acutely aware of this situation, have responded by demanding high levels of traceability from their suppliers.
"Traceability has become the buzzword in today's supply chain," according to Paul Cheek, president of Global Technology Resources (Starkville, MS). "A dedicated supply chain must provide insurances because of the food safety issues at hand," Cheek said.
Manufacturers must have the ability to trace their products from start to finish - not only for their own product security and compliance assurance, but also to gain the trust of the mass merchants they supply. Stricter requirements by mass merchants have given manufacturers little choice but to step up their traceability and revamp their plant's technology.
For example, Wal-Mart, the world's largest mass merchant, is requiring all suppliers to put Radio Frequency Identification (RFID) tags on all pallets and cases by the end of 2006. Its top 100 suppliers must begin to tag pallets and cases by January 2005. RFID tags, similar in theory to barcodes, eliminate the need for line-of-sight reading that is essential to barcode scanning. RFID scanning can be accomplished at a greater distance than barcodes, opening the door for more uses, such as finding a misplaced box in a crowded warehouse.
With this RFID mandate, comes the need for software to support it. Global Technology Resources has designed a software system that combines its Web-based global positioning system (GPS) technology with radio frequency identification to detect, track and manage food safety threats across the supply chain. The system promises to provide manufacturers with the ability to track food from the point of origin throughout production and distribution, right to the consumer's table. In the case of product contamination, the GPS system can provide the manufacturer with an immediate satellite image of the store in question, trace the product backwards through the supply chain, and dispatch risk mitigation teams to deal with the crisis. Total trace-back can be accomplished in just 10 minutes, Cheek said.
While supplying food products to mass merchants has created a tremendous opportunity for manufacturers, it comes with increasing responsibility. The successful supplier is one who can take large amounts of information from numerous sources, organize it, process it, and use it advantageously. Software companies are responding to the varied needs of the manufacturer with a growing number of options, leaving it, once again, up to the manufacturer to take the next step.
"Manufacturers are being constantly squeezed by mass merchants," Silvon's Hennel said. "They have no choice but to move to the next level."