How to optimize your replenishment through the unified supply chain?
The optimization of inventory allocation and stock levels is a pillar of logistics in the distribution sector.
How to maximize product availability while optimizing the balance between lost sales, breakage, inventory immobilization costs, logistics costs, etc.?
The integrated or unified supply chain is the answer to this double problem.
Do you want to streamline your inventory and supply management processes by synchronizing store and warehouse data and improving the flow of information within the supply chain?
Are you looking for the right balance to avoid stock-outs and, at the same time, limit the costs associated with excess inventory?
In this article, find out how the unified supply chain is the key to meeting these logistics challenges.
Definition & Context :
What is the unified supply chain?
How the unified supply chain works?
Unified supply chain refers to a strategy of integrating all elements of the supply chain into a single process.
Supply chain integration is based on the idea that all the links in the chain are interdependent and must therefore be synchronized in order to optimize inventory management and procurement.
In concrete terms, the unified supply chain is based on the centralization of data flows in a single solution and the elimination of silos between the different levels of the chain.
Store and warehouse data are synchronized. It can be cross-referenced with other data, such as factors influencing demand: weather data, point-of-sale promotions, seasonality, sales history, external events, etc.
Depending on the solution you adopt, you can then use this data to refine your forecasts, projections and order suggestions. For example, the Optimix solution allows you to make refined forecasts of inventory and supply needs based on various parameters.
What challenges does the integrated supply chain address?
The unified supply chain synchronizes the links in the supply chain to adjust inventory and supply forecasts at all levels.
In practice, we often find that retailers operate with two separate forecasting engines for the store side and for the warehouse side.
However, if these two engines are out of sync, the warehouse forecasts are decoupled from the demand in store.
They are based exclusively on the history of warehouse shipments from previous periods. The warehouse forecasting engine does not take into account consumer demand, nor the operations carried out at store level (promotions, facing changes, etc.).
This non-accounting reduces the accuracy of the forecasts. In practice, it results in risks of shortages or overstocks which, in turn, have an impact on customer satisfaction and loyalty and/or on profitability, if we consider the costs linked to an excess stock.
Do you want to improve the accuracy of your forecasts?
The unified supply chain generates on average a 15 point increase in Forecast Accuracy.
With integrated logistics, you start with sales forecasts at the distribution channel level and work your way up the chain to calculate depot requirements. For example, if the retailer has organized its depots in a cascade, we start from the consumer demand in stores to forecast the needs of the regional depots, then from the regional depots to forecast the needs of the national depots.
The forecasting of the depots therefore always remains in phase with the demand in store. And you get a very granular level of accuracy because you adjust the forecasts by product and by store and/or channel, with feedback all along the supply chain.
The benefits of a unified supply chain
Correction of sales history
The first benefit of the unified supply chain is the integration of data that affects sales. Data synchronization will facilitate forecasts, inventory and supply projections.
However, to make forecasts and projections more reliable, it is necessary to correct the historical impacts of out-of-stock situations, long shortages, promotions, abnormal sales, and various events. What is the impact of the various influencing factors on your sales? What would have been your sales levels without out-of-stock situations or promotions, for example?
You can then calculate your forecasts and your supply and inventory management plans on the basis of corrected sales, and the differences between corrected sales and observed sales can be analyzed.
A version of the forecast shared by all links in the supply chain
The unified supply chain promotes the sharing of information between all players in the supply chain.
Store managers, depot managers, local and regional levels and headquarters now all have the same level of information to make the right decisions about inventory and supply management.
All forecasts are based on the same information flow, directly from the store forecasts. Communication between the links in the supply chain is greatly enhanced.
Everyone has access to a granular vision of needs by product and by store. Internal exchanges are therefore made on a common basis to support decision-making. The same is true for the external ecosystem. Companies can rely on very fine-grained forecasts to communicate with their suppliers on supply plans.
Safety stocks and supplies based on consumer demand
The safety stock (or buffer stock) designates the additional stock that companies keep to face an unanticipated increase in demand. The volume of the buffer stock is a strong issue in logistics because the immobilization of the stock has a cost.
Too much stock leads to an increase in variable and fixed costs. An excess of stock requires the mobilization of additional space. It increases holding costs and maintenance costs. In addition, too much inventory can lead to lost time, inefficiencies and increased risk of errors in the warehouse. Overstocking can also result in unsold inventory or sales at a loss.
The unified supply chain facilitates safety stock forecasting because it is directly linked to consumer demand in stores, rather than extrapolating from previously observed warehouse outflows.
In the same way, retailers can adjust supplies to point-of-sale demand to avoid stock-outs and overstocking.
A consequent saving of time and efficiency for the teams
If your inventory management is based on a silo logic, forecasting is much more tedious and time consuming. On the one hand, store teams have to calculate and validate a forecast, and on the other hand, warehouse teams also have to make their own forecast based on historical data.
As a result, it takes twice as long to come up with forecasts that are not even correlated.
With a unified supply chain, warehouse forecasts are derived from store forecasts, which are derived from consumer demand. You can automate forecasts based on actual data and integrate the influencing factors that impact demand.
The time savings are significant. You also gain efficiency by reducing the margin of error in your forecasts and making better, more accurate and more profitable decisions for your organization.
A forecast automatically adjusted to store operations
In a siloed approach, warehouse forecasting is based solely on warehouse data. It is “blind” to everything that happens in the stores.
With the integrated supply chain, you can easily integrate store operations into your forecast and thus greatly reduce your store inventory levels. A blind forecast of final demand can only lead to safety stock inflation.
It is possible to rely on projections. For example, you put a product at the top of the shelf, you change your facings or you run a promotional operation. All these actions have an impact on your projections. With a siloed supply, they go under the radar. But if you synchronize the store forecast and the warehouse forecast, the inventory needs automatically go back to the warehouses.
Inventory and supply management is a profitability lever for retailers.
The unified supply chain relies on consumer demand to establish store and warehouse forecasts. It allows you to automate your inventory forecasts and save time and efficiency in this area. It also offers a panoramic consideration of all the influencing factors that impact your inventory management.
By adjusting your safety stocks as closely as possible to consumer demand, you can achieve substantial savings while avoiding shortages. But, to avoid shortages and overstocks, you need a very granular vision of the demand in store.
The supply chain solution developed by Optimix is based on the principles of the unified supply chain to synchronize data and refine store and warehouse forecasts.
Do you want to achieve up to a 75% reduction in out-of-stocks, reduce your inventory by up to 30%? Let’s talk about it.