As this summer’s EU ‘Bra Wars’ quota fiasco over women’s underwear, knitwear and men’s trousers showed, taking the slow boat from China isn’t necessarily always a good idea. The container loads clogging European ports – amid forecasts of empty shelves and disaster for the fashion sector – showed just how much merchandise now travels half-way around the globe to reach us.
The days when stocks were, at most, a few hours’ drive time away are long gone. Even component suppliers that traditionally clustered around major manufacturing plants to ensure just-in-time delivery – as with Rover and Longbridge – cannot depend on this model in the long term: big manufacturers go out of business, too.
But keeping stocks to a minimum remains central to most business strategies. Cross-docking and build-toorder are essential for today’s businesses and nobody wants to return to the bad old days of stock cover counted in weeks rather than days or hours.
‘In the past the warehouse was the pivot point between demand and supply,’ says Niall O’Doherty, director of industry marketing for manufacturing, EMEA, at Teradata. ‘Now the emphasis is on demand-driven supply networks (DDSN) with a lot of intermediate points between demand and supply where data can be monitored and decisions taken to redistribute or reallocate merchandise.’
Goods in transit are no longer in a black hole between supplier and distribution centre. They are available to be re-routed as required. Integrated GPS/GPRS monitoring systems can pinpoint exactly where trucks are and, eventually, RFID systems will ensure accurate and centralised knowledge of each item on every truck throughout the distribution network.
On a global scale, as O’Doherty points out, just-intime is still possible by changing how goods travel. If demand is high they can be switched at the nearest port to air freight; if it is low they can be loaded onto that proverbial slow – cheaper – boat from China instead. ‘We’re already seeing this happen in automotive,’ he adds, ‘and interest is growing in other sectors.’
Ford, for example, has implemented Teradata’s Inventory Monitoring Alert Solution (IMAS) which gives these vital insights into where goods are at any time. As a result, in 12 months, safety inventory stocks were cut by 20 per cent and there was a 30 per cent reduction in cycle time. The company found that at any one time it had 4,500 trucks moving inventory between its sites. Of these, 10 per cent were habitually late and many others were waiting around for full loads. Eliminating this sort of waste, says Teradata, soon resulted in that cut in cycle time.
AMR Research is a leading exponent of the DDSN concept. ‘If you improve demand visibility by 10 per cent you get a 20 per cent improvement in delivery accuracy,’ says Roddy Martin, AMR’s vice president for CPG, life sciences, and process industries. ‘It’s not so much about forecasting as it is about how you react to demand at the shelf.’
In the DDSN model, demand visibility with real time insight into what is happening at the shelf is combined with demand intelligence and modelling to identify which goods are needed where and to drive on-demand manufacturing systems.
AMR talks of DDSN reducing inventory by as much as 30 per cent and bringing typical out-of-stocks in retailing down from around 10 per cent to more like five per cent. ‘There are real opportunities here for taking cost out of the business,’ he adds.
Software specialist, Inform, quotes similar figures for customers using its addONE inventory optimisation tool, widely used in the services sector for managing spare parts. This calculates demand and fluctuations in demand for components, factors in lead times and comes up with an optimal solution for safety stock. Each forecast is re-run each night to hone accuracy. Gas boiler specialist Worcester – part of the Bosch group – for example, has used the system to bring stock levels for its parts up to 99.98 per cent in order to improve customer service.
Systems like this often use advanced mathematical techniques and fuzzy logic to create an intelligent application that learns over time to improve accuracy.
In the retail sector, Entertainment UK called on boffins from Imperial College, London to come up with suitable algorithms for its real time approach to stock management. EUK acts as a wholesaler and distributor for entertainment products to a number of leading retailers including Woolworth and Tesco. Each week it is faced with 700 new products – films, chart music etc – some of which will be top-sellers and require rapid replenishment. But others will languish on the shelves until they join the 20 per cent or so of the company’s distributed stocks ultimately returned by retail customers. The bulk of the entertainment products have a shelf life of no more than six weeks, while 40 per cent of sales of chart toppers are generally achieved on the first day.
On-shelf availability
‘It’s vital for us to maintain 100 per cent on-shelf availability in the first week after release,’ says Phil Streatfield, supply chain director, EUK.
That requires rapid feedback on sales and an accurate assessment of demand. Applications from TXT e-Solutions (incorporating those clever algorithms) are now giving rapid feedback on likely demand and so improving inventory management. Sales are monitored at 11am and 1pm on day one of the product release. From this the system calculates probable sales patterns, triggering replenishment and ensuring that those stores likely to sell most receive the bulk of shipments. ‘We reckon return on investment for the scheme was around three or four months,’ says Dr Streatfield.
With the system, which went live last year, stocks have been cut by 15 per cent while in the run-up to last Christmas, sales were up by three per cent thanks to better on-shelf availability.
Dixons, too, has focussed on demand monitoring as a way of improving stock control. It has used systems from Manugistics to improve stock turn by eight per cent thanks to better forecasting and closer monitoring. With lead times for Far Eastern supplies around three to five months, Dixons has focussed on improving forecast accuracy and standardising business processes with close co-operation between marketing, sales and planning departments to arrive at a consensus view of likely demand. Information is shared with suppliers and allocation is closely matched to store requirements.
‘If the forecast is right we know our safety stocks are adequate,’ says Irene Paull, inventory and programme director for DSG [Dixons Store Group] International. ‘We’re now able to anticipate problems and give a better blend of stock in stores.’
Anticipating problems is central to many successful inventory management models. Dell, for example, is well known for its rapid build-to-order model for PCs and other high tech products. Customers can configure the system they want online and be sure that it will arrive within the stated time.
Dell typically holds around five days’ stock while third party logistics providers storing supplier-owned products add as much as ten extra days’ supplies with replenishment cycles to both these resources taking anything from 12 hours to two days.
Build-to-order involves balancing what is available with what the customers want and Dell is adept at gently massaging both these factors. By monitoring component stock availability in real time, Dell and its suppliers can quickly see if there is going to be a problem with a particular part. A first step is to increase lead time, informing new customers that their preferred configuration will take eight to 10 days to deliver rather than the usual five. If that does not slow up demand sufficiently, would-be customers are offered a more expensive upgrade for the same price.
An important aspect of Dell’s data sharing with its suppliers is the integrity of the information and it uses systems from Agile Software to integrate the data feeds and ensure that website, production and warehouses are all speaking the same language and tracking the same components regardless of the hundreds of technical changes that take place in specifications each week. Important too is a flexible attitude toward staff activity. Typically there is never more than one shift’s worth of orders in the pipeline – and if for any reason the orders run out before the shift ends, assembly staff are simply switched to training activities.
Agile, which initially supplied its Anywhere product to Dell, has now also equipped the company with tools from Agile PLM – its product lifecycle management system. This not only links around 150 suppliers but also manages the complete product record, new introductions and volume operations across an extended global supply chain.
Interest in PLM has grown steadily in the past couple of years with the topic now ranging from the dynamics of demand planning and forecasting through product launches and promotions to inventory management and allocation, and from there on to markdown optimisation and clearance. In the past, many of these activities were enabled by various point solutions from specialist suppliers but they are gradually moving together to create integrated systems that really can track products through their lifecycles. Inventory management is no longer simply a system for matching supply to demand or ensuring suitable stock-turn levels but part of a wider and integrated business process.
Fujitsu is emphasising this integrated approach in its partnership with One Network Enterprises (ONE) – a US company that numbers supermarket chains such as Kroger and Safeway among its customers. The system is built around a real time planning engine with flexible process templates to enable full visibility across the supply chain network. Real time demand, for example, can be compared with forecasts and orders automatically amended.
‘The ONE platform can integrate with data from any ERP or WMS application,’ says Peer Steffensen, ONE’s vp for Europe, ‘so it can start simply as a visibility layer as users gradually move their processes to the network.’
Steffensen talks of ‘dynamic store allocation’ with the system able to adapt in real time to change the way product is distributed to meet changing demands – much as in AMR’s DDSN approach.
Improved replenishment
Fujitsu is adding hosting capability to the ONE approach allowing trading partners to access the ONE network to improve replenishment and inventory management. Results from the US suggest the system can reduce supply chain-wide inventory by up to half, cut lead times by more than 60 per cent – down from a retail industry average of eight days to just three – and cut out-of-stocks from an industry average of 10 per cent to four per cent. ‘We’ve had users achieve that in just 30 days,’ adds Steffensen.
This sort of joined-up approach is changing the emphasis on inventory management tools. ‘A couple of years ago the main focus in inventory management was on improving operational efficiency,’ says Dewi Thomas, account manager for WMS at software specialist Torex Retail. ‘Now users are focussing on applying business intelligence. We have many retail customers in the fashion sector who have to cope with long lead times from the Far East. They need good visibility to plan supplies of stock to match demand and minimise markdowns – and that means a lot of work modelling sales, availability and trends.’
Torex is increasingly interfacing its retail-specific applications with ERP systems used by logistics services providers to ensure its retail customers achieve these sorts of insights right through the pipeline. ‘We’re also seeing a lot of interest in RFID,’ adds Thomas. ‘It’s early days and the lack of standards is acting as a deterrent, but we’re confident we can handle pallet-level tracking that could well affect inventory management systems in future.’
Marks & Spencer is already showing just how effective RFID will be in inventory management in its item-level tagging project, rolled out this spring to some 45 stores across six product categories and to 30 clothing factories worldwide.
The RF tags are incorporated in Paxar labels, added to the garments in these remote locations, while data handling – matching the tags’ ID numbers to product details – is handled on an outsourced basis by BT. Intellident has built mobile readers and hand-held tag scanners with implementation due to start early in the New Year.
‘We know from our initial project with men’s suits that there is a business case,’ says M&S head of RFID James Stafford. ‘In fact, what we’d intended to be a three-month trial actually lasted for 18 months because the stores found RFID so valuable they didn’t want us to take it out.’
By regularly checking stocks – counting 6,000 men’s suits per hour – M&S was able to improve size availability across the range and so improve customer service and increase sales. Stafford is reluctant to divulge by exactly how much, but the expansion of the scheme and staff enthusiasm in the trial stores, suggest it is significant.
‘Half the problem is that we don’t have item level detail of what is being lost in shrinkage so you can’t tell which sizes are out of stock,’ says Stafford. With RFID stock checks we can update the stock file and improve replenishment and availability.’
Clever algorithms, fuzzy logic, RFID…. Inventory management has come a long way from simple stock counting and guesstimates of demand. Who knows, perhaps one day stock-outs really will be consigned to history.
