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Supply Chain Management
Martyn Daniels, Independent Consultant. Presentation as part of
an EU delegation of EDI experts, addressing a conference of
leading Israeli businessmen and technologists on ecommerce. The
presentation was based on experience and achievements whilst at
B&Q PLC. October 1995
The development of the central distribution service enabled B&Q
to review the way in which product demand patterns fluctuated,
and understand the effect this had on the service levels from
manufacturers and consequently on the stores and customers.
B&Q's products are slow selling and have an erratic sales
pattern. In order to attempt continuity of supply, stock buffers
are built up throughout the supply chain. However, this is a
very inefficient method of stock management to say nothing of it
being very costly.
The flow of orders move flow through each link in the supply
chain. These orders are characterised by a variability in the
demand between each link and have a different requirement for
frequency or replenishment. A small variation in demand at the
consumer end becomes magnified as it progresses back trough the
chain. These demand changes also lag behind one another in time
at each point in the chain.
As a result of the order materials and finished product flow
back through each link in the chain. Each link is characterised
by the replenishment lead time ( how long does it take to move
materials and products from one link to the next?). Stock is
held in the system to buffer against demand variability, length
of the chain, lack of manufacturing flexibility and the service
level requirement at each point in the system.
Critically excessive stocks are held to buffer out uncertainty,
uncertainty caused by broken information flow.
t is important that both partners understand the characteristics
of the individual chain: The manufacturing processes The
bottlenecks The characteristics of the supplier processes The
consequent cycle times and stock levels The planning approaches
adopted The forecasting systems used.
To try to smooth this merchandise flow B&Q worked with a number
of its larger suppliers on sharing "forecast" demand data. The
objectives were to:
minimise the time stock stands still and to substitute
information for inventory.
The exchange of forecast data is the "lynch pin" of supply chain
integration, removing the need for suppliers to double guess the
actions of a retailer. However, the exchange of forecast data is
not as easy as it sounds. Firstly what should the forecast be
of? Consumer demand or epos data, as it is commonly known,
Store order demand? What is the relationship between a store
replenishment order and sales through the till, or replenishment
of stock in the central distribution facility?
The whole essence of central order management is to reflect
future demand. Each retailer's supply chain is different and
requires individual analysis.
The second reason why the exchange of forecast data is not easy
is the internal business relationships. It will change the
traditional role of the buyer and his relationships with his
supplier. At B&Q, the tactical day to day links with the
supplier are now with the logistics area with the strategic
commercial relationship remaining clearly with the buyer.
The big question is how the supplier will react when in receipt
of demand forecast data? Will he:
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Relax and cut stocks and respond to criticism from the
retailer by pointing to the forecast?
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Ignore the data and do nothing differently?
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Or assume joint responsibility for product availability and
work with the retailer to extract benefits from the supply
chain?
B&Q now send forecast product sales data to an increasing number
of suppliers, so that they can feed in this information into
their production schedules. This forecast can be for 3 months
ahead, and is gradually firmed until it is committed at order.
The object is to reduce the amount of surprises in the
merchandise orders, whilst enabling the manufacturer to smooth
their production scheduling and stocktaking.
This initiative has now been working for over a year and has
brought encouraging results. The benefits from exchange and
joint use of forecast data are significant. They can:
The next area is that of pre-order to delivery process. The
order confirmation is designed to remove opportunities for error
in the exportation and receipt of goods. If 10,000 units of
goods have been ordered but the supplier can only deliver 8,000,
then the sooner it is known then the easier it will be for B&Q
to plan. Furthermore, if B&Q confirm the quantity received at
delivery, this again allows more accurate invoicing and
consequently more efficient administration for booth ourselves
and the supplier.
Again it removes the "surprises" and allows the true service
levels to be managed.
The next area is that of the invoice remittance payment cycle.
B&Q introduced electronic invoicing in '92 and currently have
75% of invoices being sent electronically. The benefits have
been immediate in speeding up invoicing whilst reducing data
input staff. Remittance advices are now being sent
electronically to suppliers. This is further removing a
significant volume of paper, postage and the need for a supplier
to rekey the information into their system. It should
significantly assist the supplier in reconciling multiple
invoices with a single payment. This is particularly relevant
where he receives orders and raises invoices with individual
stores.
But this is only seen as the first step in reducing non value
adding activities. The benefit opportunities in this area are:
Management by exception. By removing the need to check things
that reconcile Reduced cost. Paper, postage and rekeying time
Reduced manual intervention The process is from ledger to ledger
electronically.
The last area I wish to cover is that of price and product data
- The big challenge.
Currently, these are updated internally from agreed
specifications between B&Q and the supplier. This is merely a
duplication of effort. Why shouldn't the supplier have access to
a retailer's product file to update details on such areas as:
description bar code minimum quantities prices. Now this is
quite a change of culture, since it allows capture and
verification of details at source, without the consequential
paper process delay. It also reduces one of the variables in
invoicing; the price of the product. A great amount of
discussion currently takes place as to when a price is
effective; order date or despatch date.
Under a joint scheme the price of the product is agreed because
the retailer and the supplier are referencing what is in effect
the same file. The quantity is not in dispute, since the
delivery advice quantities have been transmitted on receipt of
goods. With all this in place, you can eliminate invoicing
altogether and move to self billing. Payment can therefore be
effected at the time of the agreed terms from date of receipt of
goods if necessary, rather than invoice. Now that would be a
novelty.
The other day I was thumbing trough a copy of Sam Walton's book
" Made in America". For those of you who maybe don't recognise
that name, Sam Walton was the founder of Wal-Mart stores. In
there he talks of the effort that corporations go to, to
understand their customers, but that they don't share it with
their trading partners. I quote: "We both decided that the
entire relationship between vendor and retailer was at issue.
Both focused on the end user - the customer - but both did it
independently of the other. No sharing of information, no
planning together, no systems co-ordination. We were simply two
giant entities going our separate ways, oblivious to the excess
costs created by this obsolete system. We were communicating, in
effect, by slipping notes under the door".
If you really want to get away from "stuffing pieces of paper
under each others doors" reflect how electronic trading could be
used to advantage in your business. It is an enabler to assist
your business strategy, not a strategy in itself and allows
information to flow from the appropriate retailer and supplier
systems.
The technology exists, the standards exists, all that is needed
is the vision and commitment
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