As improved forecasting and demand planning tools enter the marketplace, one of the most significant developments is the introduction of sales and operations planning and collaborative planning forecasting and replenishment into the retailing inventory management space.
S&OP is an internal process under which a company, through a series of coordinated reviews led by senior management, formulates a consensus operational and financial plan. CPFR is a joint process between supply chain partners to manage shipment flows.
The Voluntary Interindustry Commerce Solutions Association, which includes large retailers such as Wal-Mart, Lowe’s, West Marine and Best Buy, and suppliers such as Kraft Foods, Procter & Gamble, Johnson & Johnson, Kimberly Clark, Garmin and Whirlpool, recently merged the concepts.
By combining S&OP with CPFR, retailers can convert the supply chain from a disjointed, push-type to a coordinated “pull” system based on actual consumer demand.
Five years ago, S&OP and CPFR processes were the exclusive domain of manufacturers, said Ralph Cox, a principal at Tompkins Associates.
The use of S&OP and CPFR in retail inventory management can prevent chaos resulting from unplanned demand or exceptional events such as delayed shipments, freight strikes or customs and transportation issues by enabling changes in orders and lead times. The combined processes can help retailers cope with uncertainty, demand variability and promotion-driven demand that doesn’t necessarily account for point-of-sale data.
“If retailers have a solid foundation in goods processes and intimate knowledge of supplier capabilities, it can drastically improve their inventory performance,” Cox said.
A few years ago, retailers wouldn’t have touched S&OP, but the benefits are hard to ignore. It enables dynamic processes that take into account every assumption and risk. Instead of simply flagging exceptions, it triggers tasks and workflows that must be approved before transactions are executed.
A major change resulting from the use of S&OP in the retail sector is that manufacturers now are involved in retail promotional plans. To adapt, 3PLs that serve the industry must constantly update technologies and capabilities in order to differentiate. “We’re taking on inventory and production management strategies,” said Shaun Phillips at software provider Infor. “(That’s) something we couldn’t have imagined 10 years ago.”
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