Monday, February 2, 2009

Cost Reduction in Supply Chain for Retailers

Contributed by Charu Gupta

Today, retailers having chain stores and numerous distributors face a big challenge of giving best services to their customers and making timely delivery of products. This problem can only be solved once a retailer’s supply chain is responsive enough to meet the consumer’s growing demand.  

A retailer needs to strike a balance between maintaining a high level of service along with low costs. As the retailers have spread their wings globally using multi-channels and have also ventured into new categories, the supply chains have become much more complex and hard to handle. This calls for understanding the complete supply chain process and identifying the loopholes and cost occurring points in the whole cycle. 

DMAIC process by DHL which stands for Define, Measure, Analyse, Improve and Control is an ideal way to understand the supply chain. As you can’t control, what you can’t measure, retailers need to know the rationality behind each supply chain activity. 

Integrated Planning is another approach which could be helpful for the retailers in a big way. Unlike in traditional approach, where each supply chain partner whether it is at retail level, distributor level or manufacturer level creates a forecast of its own needs independent of its partners, in integrated planning forecasts are being shared between the trading partners with the goal of effective collaboration throughout the supply chain. One of its distinct advantages is that it provides scope for re-calibration. If the plan doesn’t work, the entire supply chain can be planned accordingly at one go. 

Such integrated supply chains drive out uncertainties giving enough time to the suppliers to deliver the required material and also help in proactive replenishment planning. Such futuristic projections also provide planning information to other areas of organization too.

The demand forecasts done for each unit, projected inventory balances and supply schedules can be converted to cubic feet for each store to make a rough capacity scheduling plan too. Similarly, using pricing and cost data for each item, each supply chain partner can project its cash flow and profits for future. Thus, some numbers could drive the whole supply chain and reduce your costs dramatically.

There are majorly 4 types of activities which drive supply chain costs i.e. Inventory, Transportation, Facilities and Information. Accurate forecasting and reduced lead times could decrease the investment in Inventory. Given the increased cost of fuel, scarcity of qualified drivers and congested transport networks, attention needs to be given to the transportation cost. Some retailers have installed transport management systems to improve and streamline the routing plans to reduce the costs of transporting goods. Location of factories and warehouses had to be planned in order to minimize the costs related to facilities. Using the right technology and softwares to get the right information and process it could actually make the life easier for the retailers and help in making the supply chain more efficient. 

All supply chain activities are directed towards fulfilling the expectations of customers and be responsive to their demands but at the same time retailers need to watch the costs involved and work on reducing the same.
Milagrow in its endeavour to serve the needs of modern retailers has come up with a Unique mPartnering model under its Milagrow Retail Practice in which devising a sound Supply Chain Strategy forms an essential pillar. At Milagrow, we believe coordination and collaboration among channel partners, which can be suppliers, intermediaries, third-party service providers, and customers, is quite essential, in the absence of which it is the retailer who suffers the most while the customer can easily make a switch. We help the retailers in planning and managing all the activities involved in sourcing, procurement, conversion, and logistics management. In essence, we help the companies in integrating supply and demand management effectively so that their back end operations (supply chain and logistics) are able to support their front-end operations (timely service to the customers).

Improving Supply Chain Efficiency in Retail Sector, All