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Copyright © 2004 Accenture All Rights Reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture.
Inventory Management Discussion Point Two Major Processes to Manage Supply Chain Inventory
December 2008
2Copyright © 2004 Accenture All Rights Reserved.
How to use this Deck
Store Operations
Deck
Completed
Early August
Network Optimization
Completed
TBD
Inventory Deep
Executive Deck
Completed
mid-July
Executive Summary
Deck
Completed
Description and key activities for each component of the supply chain
Supply Chain Components
Matching supply with expected demand, tightly coupled, smaller supply chain
Synchronization
Integration of the demand and supply planning process
Integrated planning
Description and steps of how to determine logistically distinct business units and how it feeds into the different demand characteristics/operating model
Logistically Distinct Businesses
(segmented supply chains)
Flow as an enablerFlow
Summary of 2 key processes for inventory management
2 processes
DescriptionTopic
Description and key activities for each component of the supply chain
Supply Chain Components
Matching supply with expected demand, tightly coupled, smaller supply chain
Synchronization
Integration of the demand and supply planning process
Integrated planning
Description and steps of how to determine logistically distinct business units and how it feeds into the different demand characteristics/operating model
Logistically Distinct Businesses
(segmented supply chains)
Flow as an enablerFlow
Summary of 2 key processes for inventory management
2 processes
DescriptionTopic
Deep Dive Decks
.This deck is on the two major processes to manage retail inventory
Expected Use: As a supplement to one of the Summary decks of the Inventory Offering for Retail Supply Chain
Included: Overview of the 2 processes, why they should be used, demand and supply characteristics and segmentation, benefits derived, examples
Remove this page before using; this Is only to illustrate how and
with what Additional materials to use this deck
3Copyright © 2004 Accenture All Rights Reserved.
Topics to be Discussed
Overview: How should different product categories
segmented to optimize inventory management? What are the two major processes we think clients
should use to manage inventory? What are the benefits associated with our
approach?
- Overview -
4Copyright © 2004 Accenture All Rights Reserved.
Establishing the two distinct inventory management processes is part of a comprehensive inventory management program for retail supply chain
- Context -
Inventory Management is the conductor of the symphony for Retail Supply Chain execution: Inventory Management is
critical for customer service
Inventory management has a major impact on supply chain cost and effectiveness
Inventory management is what initiates all merchandise movement and controls the timing within the supply chain
5Copyright © 2004 Accenture All Rights Reserved.
(Continued)
Establishing two major inventory management processes will better address retail inventory
• Foundational: Regular Replenishment, basic products, short lead times, reliable domestic vendors, reliable supply
• Highly Variable: Event, one-time, new items, short lifecycle, import/private label
When these two processes are designed properly, it will drive supply chain benefits through:
• Synchronization• Standardization/Integration• Alignment
of the Supply Chain activities
- Context -
6Copyright © 2004 Accenture All Rights Reserved.
The five areas of the supply chain must all be linked and synchronized to provide maximum benefit:
Service Level & Inventory
productivity
Ordering Practices
ReliableVendors
Merchandising Practices
Store Operations
Reliable DCs
• Need to synchronize retail flow closer with customer demand
• Need an integrated end-to-end standard process
Address all areas because addressing only one or two areas provides no significant improvement
Strive for simple and repeatable, not perfect
Develop an end-to-end RONA trade-off model, capture in playbook, and execute routinely by organization
• Align organization metrics and goals to make proper trade-offs between service levels and inventory productivity
1) ordering practices, 2) merchandising practices, 3) reliable vendors, 4) reliable DCs, 5) store operations
- Supply Chain Components -
7Copyright © 2004 Accenture All Rights Reserved.
Inventory Optimization is enabled by efficient and integrated end-to-end inventory management processes that balance service levels and inventory productivity
The end-to-end supply chain management is enabled by to two distinct inventory management processes.
Service Level & Inventory
productivity
Ordering Practices
ReliableVendors
Merchandising Practices
Store Operations
Reliable DCs
OrderingPractices
MdsgPractices
ReliableVendors
ReliableDCs
StoreOperations
•••••
HighlyVariable
Routine(Stable)
PlanogramAlignment
ResponsiveSupply &On-TimeDeliveries
ReliablyIn-Stock
Perpetual &Overstock
Maintenance
AppropriateForecast &
VendorCollaboration
LifecycleManagement
Reliable & Compliant
TimelyFlow of Goods
(with peakcapacity)
PlanogramExecution
Key Success Factors
Key Success Factors
OrderingPractices
MdsgPractices
ReliableVendors
ReliableDCs
StoreOperations
Foundational Routine(Stable)
PlanogramAlignment
ResponsiveSupply &On-TimeDeliveries
ReliablyIn-Stock
AppropriateForecast &
VendorLifecycle
ManagementReliable & Compliant
TimelyFlow of Goods
(with peakcapacity)
Key Success Factors
Key Success Factors
Foundational
Highly Variable
Regular Replenish-ment
Product Characteristics
EventOne-TimeNew ItemsShort LifecycleImport/PrivateLabel
Managed Interdependencies
- Two Major Processes -
8Copyright © 2004 Accenture All Rights Reserved.
Demand Characteristics• Promotion spikes• Seasonal products• Regular, stable demand
Segmenting products into two key categories based on their characteristics allows retailers to tailor ordering, merchandising, and store ops to better match supply and demand
Supply Characteristics• Lead times• Life Cycles Reliable Vendors• Constrained supply
OrderingPractices
MdsgPractices
ReliableVendors
ReliableDCs
StoreOperations
•••••
HighlyVariable
Routine(Stable)
PlanogramAlignment
ResponsiveSupply &On-TimeDeliveries
ReliablyIn-Stock
Perpetual &Overstock
Maintenance
AppropriateForecast &
VendorCollaboration
LifecycleManagement
Reliable & Compliant
TimelyFlow of Goods
(with peakcapacity)
PlanogramExecution
Key Success Factors
Key Success Factors
OrderingPractices
MdsgPractices
ReliableVendors
ReliableDCs
StoreOperations
Foundational Routine(Stable)
PlanogramAlignment
ResponsiveSupply &On-TimeDeliveries
ReliablyIn-Stock
AppropriateForecast &
VendorLifecycle
ManagementReliable & Compliant
TimelyFlow of Goods
(with peakcapacity)
Key Success Factors
Key Success Factors
Foundational
Highly Variable
Regular Replenish-ment
Product Characteristics
EventOne-TimeNew ItemsShort LifecycleImport/PrivateLabel
Managed Interdependencies
- Overview -
9Copyright © 2004 Accenture All Rights Reserved.
• DC & Vendors with highly reliable supply with short lead times
• Demand forecast (moderate accuracy) to support “Addition Lift”
• Timed Rollout, pipeline fill and fast trending
• Best Forecast, appropriate release schedule with defined exit
• Good forecast, responsive during selling period with defined exit
• Long lead time supplier orders based on good forecasting
We have designed two distinct processes to address differences in foundational vs. highly variable supply and demand patterns
Retail
1a. Replenishment – Regular
1b. Replenishment – Ad Event
1c. Replenishment – New Item
2. Promotional/One-Time
3. Short Lifecycle
4. Import/Private Label (supply driven)
Supply andDemand Patterns Primary Characteristics
Foundational
HighlyVariable
MajorProcesses
• Foundational: Computer-generated order (store & DC), centralized controls, automated process• Highly Variable: More forecast-dependent, buyer and computer-assisted ordering
- Multiple Demand and Supply Characteristics Segment into Two Major Processes -
10Copyright © 2004 Accenture All Rights Reserved.
Process Design Must Integrate Ordering, Merchandising, Vendor Management and Store Operations
FoundationalProducts
Flow product with short lead time from DC/vendor in response to store level demand
Order, allocate, and flow product based on derived demand forecasts
HighlyVariableProducts
Managed Interdependencies
• Event• One-Time• New Items• Short Lifecycle• Import/Private
Label
Two integrated cross-functional processes encompassing the core supply and demand patterns need to be developed to support in-stock level
OrderingPractices
MdsgPractices
ReliableVendors
ReliableDCs
StoreOperations
•Regular •Replenishment
Tightly linked end-to-end process and execution
- Two Major Processes -
11Copyright © 2004 Accenture All Rights Reserved.
Based on their characteristics, we can decide whether the category would best be served by replenishment, allocation, or other operating model
Product Categories (based on supply/demand characteristics)
Typical Characteristics Inventory Methodology
Basic Products - Regular Replenishment
•In-line items •Long product life cycles •Predictable demand
•Frequent store replenishment orders•Reliable source of supply.
Replenishment
Regional Commodities •Bulk build material•Merchandise that requires a high degree of regional or local control
Replenishment
Seasonal – Push
•Short product lifecycle•Highly variable demand (e.g.fashion merchandise, special buys)•Push Allocation
Allocation
Seasonal – Pull
•Same as above with subsequent store shipments based on initial sales, allocation or replenishment orders
Replenishment & Allocation
Import Sourcing •Long lead time sourcing•Proprietary brands
•Imports Long lead time ordering process
Local Suppliers •Merchandise provided by local suppliers, local requirement impact mix and varieties
Allocation & Replenishment
Special Order •Non-stocked items that are ordered from suppliers after customer purchase Special Orders
Basic Products - Vendor Managed Inv.
•Vendor Managed Inventory•May include in-store responsibility for shelf maintenance
Vendor Managed
Replenishment
Allocation
VMI
Non-Core Process
Operating Models
Local/ Special Orders
Illustrative- Product Categories and Their Characteristics -
12Copyright © 2004 Accenture All Rights Reserved.
Streamlining the end-to-end processes that incorporate the components of the supply chain will help sustain the synchronization of supply and demand
Foundational
Flow product with short lead time from DC/vendor in response to store level demand
Order, allocate, and flow product based on Staples derived demand forecasts
HighlyVariable
OrderingPractices
MdsgPractices
ReliableVendors
ReliableDCs
StoreOperations
StrategicImperative
Routine(Stable)
PlanogramAlignment
ResponsiveSupply &On-TimeDeliveries
ReliablyIn-Stock
Perpetual &OverstockMaintenance
AppropriateForecast &VendorCollaboration
LifecycleManagement
Reliable & Compliant
TimelyFlow of Goods(with peakcapacity)
PlanogramExecution
Key Success Factors
Key Success Factors
Tw
o M
ajo
r P
roc
es
se
s
• Regular Replenish-ment
• Event• One-Time• New Items• Short
Lifecycle• Import/Private
Label
See Appendix for Details on Each Process
- Key Success Factors -
13Copyright © 2004 Accenture All Rights Reserved.
Coordination across the entire Supply Chain must be a tightly integrated process since breakdown in any one area will sub-optimize the effort and overall benefits.
ReliableDCs
StoreOperations
Failure for one will cause failure for effort
Determines correct order quantity and IA releases order on timely basis
Execution Merchandise ordered aligns with planogram
Vendor fulfills complete orders, but does not ship to DCs on-time
DCs receive, put away in a timely manner and picked/ shipped to store
Accurate shelf inventory as a result of regular cycle counts
Breakdown in Vendor was selected only to illustrate a point. Any area could have been selected for this purpose.
Foundational Routine(Stable)
PlanogramAlignment
ResponsiveSupply &On-TimeDeliveries
ReliablyIn-Stock
Perpetual &Overstock
Maintenance
Service Level & Inventory
productivity
Ordering Practices
ReliableVendors
Merchandising Practices
Store Operations
Reliable DCs Reliable
Vendors
- Consequences of Un-Integrated Processes -
14Copyright © 2004 Accenture All Rights Reserved.
Example: Tooth Brushes (Regular Replenishment)
1. Ordering Practices: Store orders (from DCs) to cover the
next few weeks of demand and presentation requirements
Store Service level set by category and “importance” of SKU groupings
DC orders on set periodic schedule
2. Merchandise Practices: Relatively stable product transitions
based around POG schedule Promotions / exceptions addressed as
“supplemental” process Case Pack and POG alignment
3. Reliable Vendor Supply: Very Responsive Supply with minimum
forecasting Metrics to drive continual Improvement
(ASN based) Inbound transportation with tight time
execution
4. Reliable DC Supply: Rapid put away and short order to fill
times High in stock controlled by inventory
managers Frequency if store orders average 2.5 to
3 times/store/wk
5. Store Operations: Maintain Perpetual Inventory Accuracy Dock to POG location execution
- Example -
15Copyright © 2004 Accenture All Rights Reserved.
Example: Lawn Chairs(Seasonal Demand)
1. Ordering Practices Develop “Lifetime Quantity” based on
marketing, merchandising, like item and system guidance
Allocation to stores based on expected relative sales
Establish vendor and DC release and holdback schedules
2. Merchandise Practices Typically event and promotional
merchandise EOL pricing, promotions and exit
management to maximize lifetime revenue and margin
Collaboration with vendor and supply chain providers necessary to provide reliable source of supply and not exceed supply chain capacity
3. Reliable Vendor Supply Vendors must meet ship date to allow
timely and non-expedited flows to stores
Accurate ASNs to allow last minute trigger distribution updates
Staples currently has more severe charge back for orders exceeding 60 day lead time
4. Reliable DC Supply Develop event processing and value
added services Must provide timely processing and
expediting for late shipments• With appropriate external or internal
chargebacks
5. Store Operations Space location and POG decisions
support over an item’s life not just initial placement
Stores must display and stock in a timely manner
Accurate RTVs, DC recalls and transfers Display needs to flex with demand
- Example -
16Copyright © 2004 Accenture All Rights Reserved.
Establishing the two distinct inventory management processes will help fulfill the guiding principles of an inventory management program
Synchronization of customer demand to supply
Standardization and Integration of the internal process execution by the inventory management team
Alignment of goals and metrics for optimal financial management
- Strategic Mission of Two Inventory Management Processes -
17Copyright © 2004 Accenture All Rights Reserved.
Benefits
Treating categories differently leads to: Better in-stock levels Better customer service levels Supply more closely synchronized with
demand, so the customer gets exactly what they want, when and where they want it
More responsive to trends or fashion More accurate forecasts lead to less
need for markdowns
- Outcomes of Streamlining the Processes -
18Copyright © 2004 Accenture All Rights Reserved.
What Does it All Mean?
• A “one-size-fits-all” supply chain is not the best strategy – by addressing the differences in product categories, retailers can design processes to optimize supply chain performance for different types of products, such as fashion goods, seasonal items, or items on promotion
• You must strive for end-to-end integration - address every area simultaneously to achieve benefits. Focusing on only one area at a time will not give any long-term benefits
- Conclusions -
19Copyright © 2004 Accenture All Rights Reserved.
Appendix/Extra Slides
- Appendix -
20Copyright © 2004 Accenture All Rights Reserved.
The Foundational Program is focused on establishing operational excellence across five supply chain activities simultaneously.
4. Reliable DC Supply
• Rapid put away and short order to fill times
• High in stock controlled by inventory managers
• Frequency if store orders average 2.5 to 3 times/store/wk
5. Store Operations
• Maintain Perpetual Inventory Accuracy
• Dock to POG location execution
3. Reliable Vendor Supply
• Very Responsive Supply with minimum forecasting
• Metrics to drive continual Improvement (ASN based)
• Inbound transportation with tight time execution
1. Ordering Practices
• Store orders (from DCs) to cover the next few weeks of demand and presentation requirements
• Store Service level set by category and “importance” of SKU groupings
• DC orders on set periodic schedule
2. Merchandise Practices
• Relatively stable product transitions based around POG schedule
• Promotions / exceptions addressed as “supplemental” process
• Case Pack and POG alignment
End State
• Regular Replenishment
Foundational
OrderingPractices
MdsgPractices
ReliableVendors
ReliableDCs
StoreOperations
Routine(Stable)
PlanogramAlignment
ResponsiveSupply &On-TimeDeliveries
ReliablyIn-Stock
Perpetual &Overstock
Maintenance
Key Success Factors
• Store and DC ordering practices leveraging short lead times and reliable supply
• Vendor Reliability, short lead time and compliance
• DC Operational Excellence (transportation/ receiving)
• Maintain store perpetual and measure customer experience
• POG-Case Pack-OUTL Alignment
Key Value Levers
- Foundational Project – Basic Replenishment -
21Copyright © 2004 Accenture All Rights Reserved.
Alternative Slides
Foundational ProjectBasic Replenishment
4. Reliable DC Supply
• Rapid put away and short order to fill times
• High in stock controlled by inventory managers
• Frequency if store orders average 2.5 to 3 times/store/wk
5. Store Operations
• Maintain Perpetual Inventory Accuracy
• Dock to POG location execution
3. Reliable Vendor Supply
• Very Responsive Supply with minimum forecasting
• Metrics to drive continual Improvement (ASN based)
• Inbound transportation with tight time execution
1. Ordering Practices
• Store orders (from DCs) to cover the next few weeks of demand and presentation requirements
• Store Service level set by category and “importance” of SKU groupings
• DC orders on set periodic schedule
2. Merchandise Practices
• Relatively stable product transitions based around POG schedule
• Promotions / exceptions addressed as “supplemental” process
• Case Pack and POG alignment
Future State
• Regular ReplenishmentFoundational
OrderingPractices
MdsgPractices
ReliableVendors
ReliableDCs
StoreOperations
Routine(Stable)
PlanogramAlignment
ResponsiveSupply &On-TimeDeliveries
ReliablyIn-Stock
Perpetual &Overstock
Maintenance
Key Success Factors
- Impact of Flow -
22Copyright © 2004 Accenture All Rights Reserved.
Successful execution of highly variable demand patterns requires timely and responsive process supply chain integration throughout entire product lifecycle.
Highly Variable Project – Allocation/Event Planning and Execution
4. Reliable DC Supply
• Develop event processing and value added services
• Must provide timely processing and expediting for late shipments
– With appropriate external or internal chargebacks
5. Store Operations
• Space location and POG decisions support over an item’s life not just initial placement
• Stores must display and stock in a timely manner
• Accurate RTVs, DC recalls and transfers
• Display needs to flex with demand
3. Reliable Vendor Supply
• Vendors must meet ship date to allow timely and non-expedited flows to stores
• Accurate ASNs to allow last minute trigger distribution updates
• Staples currently has more severe charge back for orders exceeding 60 day lead time
1. Ordering Practices
• Develop “Lifetime Quantity” based on marketing, merchandising, like item and system guidance
• Allocation to stores based on expected relative sales
• Establish vendor and DC release and holdback schedules
2. Merchandise Practices
• Typically event and promotional merchandise
• EOL pricing, promotions and exit management to maximize lifetime revenue and margin
• Collaboration with vendor and supply chain providers necessary to provide reliable source of supply and not exceed supply chain capacity
Future State
• Event• One-Time• New Items• Short Lifecycle• Import/Private Label
HighlyVariable
OrderingPractices
MdsgPractices
ReliableVendors
ReliableDCs
StoreOperations
AppropriateForecast &
VendorCollaboration
LifecycleManagement
Reliable & Compliant
TimelyFlow of Goods
(with peakcapacity)
PlanogramExecution
Key Success Factors • Pre-season: Collaboration around events, forecasts, store allocation etc.
• During season: Flow of goods, timing of receipts, service levels setting
• Post-season: End-of-Life Management, OTB constraints
Key Value Levers
- Impact of Flow -
23Copyright © 2004 Accenture All Rights Reserved.
Alternative Slide
4. Reliable DC Supply
• Develop event processing and value added services
• Must provide timely processing and expediting for late shipments
– With appropriate external or internal chargebacks
5. Store Operations
• Space location and POG decisions support over an item’s life not just initial placement
• Stores must display and stock in a timely manner
• Accurate RTVs, DC recalls and transfers
• Display needs to flex with demand
3. Reliable Vendor Supply
• Vendors must meet ship date to allow timely and non-expedited flows to stores
• Accurate ASNs to allow last minute trigger distribution updates
• Staples currently has more severe charge back for orders exceeding 60 day lead time
1. Ordering Practices
• Develop “Lifetime Quantity” based on marketing, merchandising, like item and system guidance
• Allocation to stores based on expected relative sales
• Establish vendor and DC release and holdback schedules
2. Merchandise Practices
• Typically event and promotional merchandise
• EOL pricing, promotions and exit management to maximize lifetime revenue and margin
• Collaboration with vendor and supply chain providers necessary to provide reliable source of supply and not exceed supply chain capacity
Future State
• Event• One-Time• New Items• Short Lifecycle• Import/Private Label
HighlyVariable
OrderingPractices
MdsgPractices
ReliableVendors
ReliableDCs
StoreOperations
AppropriateForecast &
VendorCollaboration
LifecycleManagement
Reliable & Compliant
TimelyFlow of Goods
(with peakcapacity)
PlanogramExecution
Key Success Factors
Highly Variable ProjectAllocation/Event Planning and Execution
- Impact of Flow -