Monday, May 28, 2012

Automated Store Replenishment – Volume IV

Automated Store Replenishment (ASR) is by its own definition “an environment in which a computer is responsible for ordering and maintaining the proper levels of inventory within an organization involved in the process of handling goods for its own use, or for resale to a third party.”

In a retail environment, the goal of ASR is to literally REPLACE manual ordering, specifically the ‘order clerk’ at store level. Ref. “The Art and Science of Computer Assisted Ordering” – Barbara V Anderson.

Empirical research over the past eight years has proven, “not only is the process of manual ordering time-consuming, the value of continuing with such a program is inferior to employing a more sophisticated approach, mainly utilizing mathematical processes alone”.

But didn’t you just say, “Experts tend to agree that a purely mathematical approach to inventory management is impractical?”

Yes I did. However, errors in ASR are rare, IF you adhere to three, basic principles: These principles involve a strictly defined system for ‘purchasing’, another for ‘sales’, and the most important of all, a means to provide continuous ‘audits’ of inventory in the stores. Of the three, the most neglected of these is by far the process involving ‘continuous audits’.

Over the years, retailers strived to lessen the cost of these processes and done almost nothing toward improving their value. To further understand the knowledge you have gained so far, let’s expand upon these principles, and examine each of these as individual processes with the forthcoming understanding that in the end, they will form a ‘tripod of stability’ within your organization.

Purchasing
Forming what experts refer to as ‘Managed Supplier Partnerships’ with vendors, was not exactly a slam-dunk for Walmart. In Marcia Layton Turner’s excellent book, “Kmart’s 10 Deadly Sins”, she characterizes Kmart’s 2001, failed attempt to become the lowest priced retailer when she writes, “When Kmart decided to lower its prices, it did so without even consulting its suppliers to get their feedback on its grand scheme or to ask for support”. She goes on to say, suppliers would have been more than willing to support Kmart’s plans, IF they had been asked.

Walmart, on the other hand, upon hearing of Kmart’s grand plan, immediately consulted with their suppliers about lowering prices of products sold to Walmart with assurances of volume increases, meaning more profit for all. By doing so, Walmart formed a Managed Supplier Partnership with its vendors, a move that Kmart discounted as ‘unnecessary’.

During the past eight years, we have been working closely with a customer’s primary supplier in an attempt to, not so much lower his purchase prices, but to increase the level of integration between this particular supplier and its retailers. One thing we learned quickly is every supplier has different ways of communicating with their retailers, and the way they do this is more or less defined by the back office software the retailer is using. However, keeping in mind the “tripod of stability” I mentioned earlier, virtually none of these software providers have developed systems that have successfully integrated all three. This is by no means a criticism of their software; it is simply a statement of fact, based upon their abilities to operate within the limits of their current technology.

More than anything else, technological issues stand in the way of successful Managed Supplier Relationships. Go to http://industryweek.com/articles/how_to_build_a_better_supplier_partnership_24607.aspx?Page=1
 to read a four-page article on how to build a supplier partnership and you will better understand why the size of the retailer and its technology play an important role in its success or failure.

More to come…..

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