Friday, June 15, 2012

Automated Store Replenishment – Volume XXVI

Suppliers have several major issues that will be obliterated by implementing an Automated Store Replenishment (ASR) relationship with their customers. Here are but a few, with a brief explanation of each:

Excessive Warehouse Stock:
I readily admit and humbly confess one of my previously, flawed assumptions. After years of watching excess inventory pour into stores, I naturally assumed suppliers were purposely contributing to overstock. A large majority of clients agreed with me. In my defense, presales people helped me to jump to that conclusion; nevertheless, I was wrong—dead wrong. Surely, some sales people are guilty of overstocking retailers to pad their commissions; however, if you go back to the source, to the suppliers themselves, they truly get it—overstocking retail stores is not in their best interest. Why? because overstock can be as damaging to wholesalers as out-of-stocks are to both of you. 

Not knowing what retailers have in their stores affects a supplier’s ability to forecast future needs, so they have to resort to stocking excessive amounts of inventory in their warehouses in the case their retailers might run short. As inventory piles up in warehouse, the tendency is to get rid of it as quickly as possible. If suppliers knew ahead of time what retailers would most likely be able to sell next week, next month, or six months down the road, taking into account seasons and holidays, they would not need to invest so much of their working capital in overstock. If you will demonstrate your willingness to help your suppliers cut costs, they will bend over backwards to help you.

Frequency of Deliveries:
Yes, I was wrong again. Common sense led me to believe more frequent deliveries would benefit retailers, as it would help reduce unneeded stock and make retailers lean and mean. However, while actually working in the stores and with their suppliers, I have seen the real world and it brought me to the opposite conclusion resulting in unseen advantages to both, but only if it is done with a high degree of accuracy. The reason I belabored for so long under the wrong assumption can be attributed to the vast amount of overstock present in most retail stores. Eliminate that and old assumptions become unsustainable.

It costs suppliers money to deliver inventory to your stores. By extending the period between deliveries and bringing to the store only what can be sold within 1.5 to two delivery cycles, there will be huge reductions in stock with longer delivery cycles, resulting in less delivery expense to suppliers, allowing suppliers to offer deeper discounts  to retailers, thereby giving both distinct competitive advantages.

If you have read my previous book, ‘Retail Is Detail’, you’re most likely familiar with my ideas regarding consigned inventory, based upon taking the wholesaler’s point of view that retailers are merely conduits to get their inventory into the hands of consumers. I explain in great detail, how it will double suppliers profits and increase retailers’ use of working capital by over 60%.

Suppliers can’t possibly get ASR to work while dealing with hundreds of different interface requirements used by a multitude of retailers. A third-party provider could easily be employed to standardize Retailer/Supplier integration providing overstock and out-of-stock solutions for both. And the cost? How about zero?

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