Friday, May 27, 2011

The Case Against Category Management – A Radical New Idea -3


For years, retailers have been focused on the out-of-stock issues that plague the industry, but ‘out-of-stocks’ is only one small symptom of the ‘supply chain problem’. I found an excellent article entitled ‘Out-Of-Stock’ at Infosys.com that goes a long way toward pointing out the problems that exists even today, but it falls short of coming up with an answer for small to medium-sized retailers.

In the article, written by Kishor Gummaraju and Tom Holland, Miller Brewing’s, Jeff Schouten, said,  “In reality, when the problem affects the inability of the consumer to buy a product, everyone in the supply chain shares in the responsibility to fix the problem ... Retailers, suppliers and distributors must work together to identify the issues leading to the out-of-stocks.”

Cathy Green, COO of Food Lion was quoted as saying, “The retailer has direct responsibility to their consumer. We own [the out-of-stock-problem] ... The consumer leaves the store knowing that ‘Food Lion didn’t have what I wanted.’ I don’t believe the consumer would associate an out-of-stock with a failure on the vendor’s part.”

But, Gary Chartrand, CEO of Acosta Sales and Marketing said, “Retailers alone generally do not have the technology and manpower to analyze and solve each promotion opportunity. Suppliers also have a responsibility to ensure they are bringing sound recommendations to the retailers in terms of order quantities. Unless retailers and suppliers collaboratively share data and work together, consumers will continue to face promotional product shortages.”

Dee Briggs of Welch’s remarked, “The industry needs some type of third-party company that identifies out-of-stocks with the aid of the retailer, and then finds solutions to get the item back in stock … Currently, the stores don’t have enough people to do this effectively… There needs to be a  new entity that focuses on helping to resolve these issues at the store.”

But, Briggs hit the nail square on the head when she added, “The key issue is RETAILERS DO NOT HAVE ACCURATE PERPETUAL INVENTORY SYSTEMS, so store ordering can be difficult and lead to ordering the wrong items.”

Each of these industry professionals made valid points, but the one thing they left out of the article is the retailers’ ability to pay for the kind of technology necessary to implement such an adventurous plan. It’s clear… it can’t be done without INTENSIVE collaboration up and down the supply chain.

The supply chain is a structure, and can best be understood by relating it to a building. I bought an older home and spent in access of $100,000 renovating it. Then, one night, at around 4 AM, a main beam under the house broke and all the work I had done was in danger of total collapse. Luckily, I live in an area occupied by an abundance of carpenters, all looking for work. I was able to find someone who rebuilt the foundation of the house for $1,400 plus the cost of materials I acquired myself for around $1,000. The next thing I did was fire my termite contractor and hire a new one.

The basement of the supply chain is rotten and no matter how much renovation, e.g. EDI, XML, advancements in Client/Server technology, is engineered above the foundation, the system will eventually collapse, as in the case of my old house. We must rebuild the foundation the supply chain sits atop and it cannot be done by one, single company. It’s going to take all of us, working together, to fix it from the bottom up. It’s like the adage, “You simply cannot make a silk purse out of a sow’s ear.”

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