Over the years, we at Logistics Bureau have been lucky enough to work with hundreds of companies across many industries in many different countries and one of the things I always say to people is that in 99% of businesses, there is no single solution to the Supply Chain. By that I mean that most companies need to be flexible in how their supply chain is structured and managed, to best meet the needs of their specific customers and products. If you’ve watched our cost to serve video, you’ll know what I mean.
This need for flexibility in our approach to managing the supply chain, is probably most obvious in the retail sector. Retailers often have very broad product ranges and products that might have a short life cycle, so they need to have different approaches within the supply chain to deal with this, based on the product characteristics. Let’s look at a simple example, and we’ll break down our product range into two: Continuity Products and Non Continuity products.
Continuity products are those that the retailer aims to stock and sell over an extended period, as long as the customer wants to buy them. Bags of rice in a grocery retailer, bags of fertilizer in a gardening retailer, plain black socks for an apparel retailer. Those continuity products will come through the supply chain in a steady flow, and we need to manage that aspect of the supply chain well, to ensure we are never out of stock, and we get the product into the store at the lowest total supply chain cost.
Non Continuity products on the other hand, are not expected to sell forever. They might be seasonal or fashion items. The retailer needs to buy effectively, to get the product into stores at the right time and quantity, and then sell-through effectively, minimising the degree of markdowns and then move on to the next product. Examples of these non continuity products might be winter coats, BBQs, swimwear, mother’s day cards or Easter eggs, I’m sure you get the idea.
So the management focus for managing these different types of products through the retail supply chain is very different. Some retailers may only have continuity products, some may only have non continuity products, and some may have a mix. Most retailers have a mix of some degree. So let’s look at these two main value streams and how our approach needs to vary.
For the continuity products, they are in stock all year round, and we need to carry out range reviews periodically. We might be using Planograms to guide the stores on layout. In most cases we should be! We need to focus on maintaining high levels of stock availability. We need to maintain high stock turns, of 10 or more. We need to have the lowest possible supply chain costs; we need to measure supplier performance well, as this has a big impact on availability. And we need good replenishment processes and systems. For fast moving products we might use high frequency, short lead time replenishment. We might use some form of unit load to reduce handling, such as the plastic crates you see used in supermarkets for fruit and vegetables.
For the non continuity products, it’s all about seasons, fashion, promotional events and opportunity products. Our trading and promotional calendar will drive the product range reviews. It’s also about closely managing the product life cycle, from ranging to buying to distribution to selling it through with minimum residual product and mark down remaining. This needs a critical path approach to managing the supply chain. It’s about the product entry, sell through, mark down and exit. Then move on to the next products. It tends to be much more of a push or allocation system. Pushing products out into the stores, ready for the next season, event or promotion. It needs quick response and replenishment during the season. So as you can see it’s a very different approach to the continuity products.
So that was just a quick summary of how supply chains need to be managed differently, depending on the characteristics of the products being sold, using retail supply chains as an example. As you can see, in many supply chains, more than one approach needs to be used.
So when you think about your own supply chain, does one size fit all?