August 12, 2002, 12:00 AM

Stocking the shelves

How the web is weaving itself into the supply chain.

A measure of the web’s impact on retailing has been the amount of online shopping taking place. And while that is certainly one way to look at the web, another measure of the pervasiveness of the web in the retail industry is to look at the opposite end of the process-the sourcing of merchandise. In that part of the industry, the web is having far greater impact than it has on the selling of goods.

A few leading retailers are moving aggressively to using the web to order merchandise from brand-name manufacturers as well as from suppliers of house brands. A few examples:

- Wilsons the Leather Experts Inc. is using a web-based sourcing system to manage the creation of products throughout Southeast Asia. Wilsons has eliminated the double- and triple-entry of orders that its previous semi-automated system required.

- Sales of Manco Inc.’s glue, tape and kitchen and bath products increased as much as 15% at some Ace Hardware outlets as the result of a web-based collaborative supply chain initiative. “We now consider Ace a growth customer,” a Manco executive says.

- At U.K.-based J. Sainsbury plc, the web is an integral part of the creation of house brand products. “Internet technology is a fantastic tool for collaboration on new products,” says a Sainsbury executive.

And as the benefits that these retailers are gaining in reduced costs of procurement and higher in-stock levels become more widely recognized, others will be quick to adopt web-based supply chain initiatives as well, analysts say.

Measurable benefits

So far, though, web adoption has been slow. A report from AMR Research Inc. says that no more than 60 retailers are using a Collaborative Planning, Forecasting and Replenishment system. CPFR is a process devised by the Voluntary Interindustry Commerce Standards Association. On the supply side, no more than 150 manufacturers are participating in CPFR, AMR says.

AMR Research says retailers benefit from CPFR initiatives with 2-8% better shelf stock rates, 10-40% lower inventory levels, 5-20% higher sales and 3-4% lower logistics costs. Manufacturers benefit by 10-40% lower inventory levels, 12-30% faster replenishment cycles, 2-10% higher sales and 5-10% better customer service.

In spite of the benefits that some retailers are talking about, others have not adopted CPFR because of the economy, or they are waiting to see how the standards develop before making a commitment, or they are confused about where to start, AMR says.

Participants in web-based supply chain automation initiatives say there are any number of starting points. Analysts most often cite: Determining which products make the most sense for collaboration, developing close working relationships with partners, cleansing data and making sure that all data feed into a central database and making sure the right people are on staff.

Retailers choose which products to place into a CPFR program based on what percent of the overall business a product represents. The product selection pretty much dictates which partners to collaborate with. Thus the next step is building the relationships with those suppliers. “The hardest part is communication,” says an executive of a product manufacturer. “You have to develop the relationship between two companies so that communication works just as if two individuals were sitting in cubicles next to each other.”

Clean, consistent data

Once that process is under way, the retailer and the manufacturer must ensure that the data they will be sharing are consistent and clean. The retailer’s database must report each product in the same way, no matter the source of the data or where the data reside. And the retailer must also have a centralized view of data throughout the system on both the demand side and the supply side.

Yet another early requirement for making a CPFR project work is making sure the right people are in place. “Systems are important, but the really critical piece to making collaboration work is the people,” the product manufacturing executive says. “To make collaboration work, you really need a new person who understands development, manufacturing, distribution, production as well as marketing.”

Retailers can start a CPFR initiative for as low as $125,000, though licensing fees of $300,000 to $3 million are more typical, AMR says. A retailer also can use a vendor-hosted system for $90,000 to $250,000.

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