Demand Driven Supply Chain- Bridging the Gap by Flowcasting
Supply chain planning is the core need for any retail brand in the today's world. In order to gain better visibility of their own Supply Chain, companies have started investing a lot into planning solutions. The driving point for such investments is to gain accurate visibility of material flow across the entire supply chain. Many solution vendors exist to address these kinds of solutions including SAP, Oracle or JDA. Even though lots of organizations have such planning solutions, yet the main question for any operations team still remains: - "In a forecast driven supply chain, where should be our demand point and how to control bull whip effect due to variability in customer demand?" (i.e between various nodes in the supply chain from supplier till retailers).
Recently, JDA in his annual event called Focus talked a lot about new IT solutions. In fact, a lot of stress was given on next generation Retail based supply chain solutions. In general sense, every retail organization has got certain set of tools and solutions to harmonize its own chain of partners (i.e suppliers who provide the raw materials-->transporters to make that material arrived at Production unit--> manufacturer to make end product--> Transporters who drop material to DC's/Retailers --> Finally Retailers who meet the needs of end consumers),But the bigger question remains as to "how are they managing their supply chain to reduce the problems we just spoke about?"
So far, retail firms have used various approaches to make their planning more accurate from Distribution Center's perspective i.e be it a historical shipment based forecast generation (to arrive at future demand picture), which does not work that well due to ever changing future demand patterns OR be it a traditional collaborative planning solutions where retailers and manufacturers build a consensus forecast to arrive at a more realistic future demand picture. Although collaborative planning based solution has given good results to the extent of DC inventories and service levels, it does not give us the detail shelf levels and store level 'out of stock situations' (which are the key KPIs for any retail operation). This happens due to missing store level forecast, which should be the actual driving point, as has been observed by industry experts.
The next wave of retail planning solution would be the demand driven supply chain also known as 'Flowcasting' (a word new to many of us, recently frequently used in the context of Retail planning).In simple terms, it's the more practical way to pass on the correct demand picture to other nodes like DC's, manufacturer or suppliers in the chain. It includes the store Point of Sales (POS) data and inventory, which are the real inputs to generate forecast numbers. Keeping end retailers i.e stores in the supply chain loop brings more dynamism in the supply chain. Flow-casting is the first approach that makes consumer demand at the retail store 'the focal point for the time-phased planning of inventory and replenishment' throughout the chain.
It is an interconnected retail/CPG supply chain model that starts with the sell-through forecast and propagates backward. The model understands store and retail DC reordering policies, as well as CPG manufacturing and delivery lead times. This single model of the business across the entire supply chain is shared by retailers and manufacturers. These are cloud-based solution and allows for an executable plan between the manufacturer and retailer, who are working off on a common point of view of what's being sold at the store.
To a certain extent, Retailers and manufacturers have worked in silos i.e both of them have been doing their own side of planning. The new cloud-based solution closes the loop and tightly monitors the entire flow. Considering retailer's POS/stock level policies in the supply chain brings planning more closure to the real world of business.
The system updates the information like future POS/Replenishments/ Shipments between stores/ DC's / Mfg plant and refreshes it on a daily basis; The other nodes in the supply chain get a more realistic figures (i.e a more concrete way to pass on the correct picture to other nodes like DC's, plant or suppliers). By including retailers in the chain with their POS dataset, the correct expectation can now be sent across all upstream nodes.
We hope to see Flow casting bringing new changes in the retail world of supply chain by correcting the input demand picture and reducing the upstream bull-whip effect to a larger extent. This should make the whole loop more realistic and more closely connect the business and the customers.