November 1, 2001, 12:00 AM

Recent events make supply chain management critical this holiday, AMR says

With stockpiling a no-no, web-based supply chain systems can provide flexibility and speed in forecasting, sourcing and price adjustments to reduce retailers’ risk in uncertain times.

Retail industry analysts have probed the effects of a recession and the aftermath of Sept. 11 on the year’s biggest retail season from every angle and arrived at a near-uniform consensus: there’s more in the mix to lift than to depress online sales this holiday. But what do these events mean to retailers on the supply chain side?

“They’ve highlighted retailers’ need for supply management – demand forecasting, strategic sourcing, price adjustments and price optimization,” says Janet Suleski, a senior analyst with AMR Research. If retailers – including those selling on the web -- were already behind the curve in having such systems implemented, they’ll be scrambling in the current climate, according to AMR.

While recent events and an uncertain economy will have an impact on consumer demand, they don’t change the method of forecasting it, says Suleski. Already in place, effective supply management systems will do what they’re supposed to do: help retailers maximize profits from sales and narrow operational losses. What’s different now is that retailers are in greater need of web-based systems that let them turn on a dime.

“Retailers need systems that allow them to communicate much more quickly with their suppliers. In case of a supply disruption or a serious alteration in demand patterns, they need to respond on the front end much more quickly to consumer demands – they need to be able to react as fast as possible to what they can’t forecast, from unexpected events such as a terrorist attack all the way up to an unanticipated consumer buying surge,” Suleski says.

In going over their options after Sept. 11, some retailers looked at stockpiling inventory as a way to minimize possible supply chain disruptions going into the peak selling season, says Randy Covill, AMR Research senior analyst. “Stockpiling inventory is a terrible idea,” Covill says. “It’s expensive, it raises business risk and it goes against the whole trend of retailing over the past 10 years, which has been about inventory reduction and more rapid replenishment schedules.”

Instead of stockpiling for the holidays, retailers need to be more flexible and faster in supply chain management, Covill says – one reason that those unable to do so could find themselves trying to play catch-up in Q4. “Either you have the systems in place to support that kind of flexibility, or you resort to stockpiling,” Suleski adds. “You may see weaker retailers resort to stockpiling, but ultimately that’s going to cause them financial grief.”



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