Supply chain professionals today recognize the value of tracking customer behavior through point-of-sale (POS) data. But while tracking POS data has become increasingly pervasive, very few companies actually use that information to leverage a competitive advantage. Frequently, the data are simply reviewed, but not used strategically. Retailers can make that data operational by sharing it with their suppliers, and letting suppliers use the data to take command of all functions powered by POS. This transfer of responsibility enables total channel management (TCM), allowing suppliers to take control of their own destiny.
What's in it for the supplier?
By managing the forecasting and demand fulfillment functions, the supplier increases its sales by ensuring its products are in the right place at the right time. The supplier decides how many weeks of inventory will be carried, in what locations, and how to write the orders to meet its needs and those of the retailer. By moving out of a reactive mode, suppliers have the ability to concentrate on other areas, such as demand shaping, to maximize their sales. They can also look at specific markets to target problem areas and quickly find resolutions. Through TCM, suppliers can smooth out their production because they are not continually reacting to what happened the week before. They can adjust for trends on a more incremental basis.
Additionally, this collaborative structure invariably improves business partnerships, ingraining the supplier within the culture of the retailer. It makes it difficult for suppliers to be removed, and gives them an edge when competition is tight. The biggest objection from retailers that suppliers have to address is the fear of giving up "the power of the pen." Demand and forecasting personnel on the retail side may fear that transferring power to the supplier puts their jobs at risk. Therefore, suppliers must work to assure their partners that this new relationship enables them to be more strategic and shifts the tactical aspects of the relationship to the supplier.
What's in it for the retailers?
Big-box retailers typically carry 6-8 weeks of inventory because they know they are going to make mistakes. They don't spend a lot of time putting the right product in the right place because they can fall back on their suppliers to take care of the problem, creating a flawed system that ties up capital for both the supplier and the retailer. This dynamic represents a perfect scenario for shifting the responsibility for forecasting and demand management from a retailer to a supplier.
By engaging in a TCM relationship with suppliers, retailers reduce their total weeks of supply, and can sell at a net-zero ownership of goods, depending upon their payment terms. Their free cash flow goes up enormously, because the supplier is tightly controlling inventory and assuring that sales will be maximized by putting the right product in the right place, at the right time. In addition, end-of-life expense becomes much less of an issue, due to demand shaping and depleting inventory in a systematized manner.
Proving the value of a new kind of partnership
Convincing a retailer to change to a TCM business model is typically a long process for a supplier. During the course of several months, the supplier should meet each week with the customer and compare forecasts to demonstrate that the supplier has the superior forecast. After 3-4 months of this process, the supplier should begin collaborating with the customer to manipulate its forecasts. As the customer continues to see forecasts improve through this collaboration, the door is opened for the supplier to ask the customer to take over the management of forecasting and demand fulfillment functions.
The i2 solution
The i2 Total Channel Management solution has been designed to take POS analysis to this next level. The endto- end solution incorporates i2 software, consultants and analysts, enabling a successful transition from the buy-sell relationship to TCM. The solution has been proven with a variety of i2 customers, leading to dramatic increases in sales and turnover, lower sales-related expenses, and significant improvements to the bottom line.
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Michael Aguilar is president of Intrepid Consulting Group, LLC For more information, contact supply_chain_leader@i2.com.
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