No matter the time of year, social media always has the potential to dramatically change demand for particular items within minutes or hours. Whether that’s a big rise in demand for crop tops seen in street style round ups during Fashion Week, or for a sleek new tablet featured on the Winter finale of this year’s hot new TV show, platforms like Pinterest, Instagram, Facebook and Twitter are really driving the way products are introduced and consumed.
In today’s business environment, change operates on a scale and at a pace that is unprecedented, making it difficult to plan for today, let alone the future. Capturing the vagaries of demand once they occur is a challenge but an even greater challenge is planning and forecasting for an unpredictable and variable market. So how do you do it? The short answer is you can’t, but streamlining your process steps with the right ERP system and supply chain management tactics will help you to run as fast as the pace of change so you won’t have to guess, you’ll only have to have the pieces that you’ll need in the right places.
Enhance Performance with a Healthy Supply Chain Strategy
Maximizing supply chain flexibility and managing multiple supply chain configurations is becoming paramount, especially as the increasing use of online channels is forcing supply chain managers to reduce their response times and fill smaller, more personalized customer orders. Moving forward, companies who sell goods directly to consumers will need to learn how to keep up and stay on top of these trends. They’ll need to build value chain partnerships with suppliers and better integrating their value chain processes, so they can replenish their supply in a matter of days rather than weeks, thereby minimizing the inventory and work in process risk in the chain.
In fact, a survey done by PwC on the global supply chain found that “companies that acknowledge supply chain as a strategic asset achieve 70 percent higher performance. Companies that beat the competition on supply chain performance also achieve significantly better financial results. Supply chain leaders deliver on time in full on 95.7 percent of occasions and have an impressive 15.3 inventory turns, while the laggards achieve only 3.8 turns. That means greater efficiency and customer satisfaction without driving up working capital — essentially, having it all.”
The leading companies included in the PwC survey all have supply chains that are efficient, fast and tailored, despite the turbulence in the market, and are investing in three primary areas to differentiate their practices: collaborating with key customers on planning (e.g. effective forecasting), end-to-end supply chain planning and visibility, and a vendor-managed-inventory direct-replenishment model. With this in mind, here are five further recommendations for dealing with market and demand volatility:
- Build strong value chain partnerships with your suppliers and integrate your processes. The goal is to get from a traditional supply chain to a collaborative value chain relationship by sharing information and risk in order to align more responsively with consumer demand. To create harmony in the supply chain, have a plan for what to do with poorly performing products, and when and how to do it. Don’t play musical chairs with the suppliers and retailers you depend on. Instead, share the risks and the rewards.
- Shorten time to market and shrink your planning horizon. Time compression results in more overlap between the design, production and inventory control phases, rendering some conventional procedures either unnecessary or counterproductive. Look for “waste” in the value chain and remove it. Shrinking your planning and execution horizon is hard but yields good results.
- Lead time and agility mean more than chasing the needle for the absolute minimum cost. The lowest cost supplier is likely to be the slowest as well because the company will rely on full capacity utilization to compensate for low margins. Geographic distance can also add lead-time. These factors make replenishment unreliable and sluggish. Instead, source components where they are the highest quality at the lowest cost and lead-time is flexible and reliable. Even consider bringing components together for assembly in a place close to market.
- Manage inventory as a central pool. Make sure to remove all inventory silos and do not allow separate inventory management by channel. This is a key foundation for success in today’s omni-channel environment.
- Do not pre-allocate warehoused material stocks as a standard procedure. Market volatility due to fickle consumers, the impact of social media and other factors make pre-allocated stocks meaningless. In fact, pre-allocation really only makes sense if you contract with your customers for direct-to-store shipping or in fulfillment of standing orders for pre-set quantities.
More than ever before, consumers control the economics of the industry and organizations need to harness this information appropriately and adapt their processes in order to respond to volatile demand, manage inventory risk and rapidly take market leadership.
Bob McKee is Industry Strategy Director, Fashion at Infor.