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Demand-driven retail supply chains need automated wholesale routing

To remain competitive and continue growing conversion rates and sales per square foot, brick and mortar retailers are under pressure to make available exactly the products consumers want and when they want them.

In our view, automated wholesale routing—an intelligent, holistic approach to integrating the supply chains between retail brands like footwear companies and their wholesale customers like department stores—will be a key driver of value going forward.

Over the next three to five years, global supply chains will be radically reorganized.

Protectionist trade policies are dismantling decades-old freight flows between major economies. A new wave of automation in manufacturing and compressing spreads in labor cost arbitrage opportunities are encouraging importers to on-shore or near-shore more of their supply chains. At the same time, lean practices, tight industrial real estate markets, and intensifying e-commerce activity have shifted the perception of supply chain outperformance from a cost center to a competitive differentiator.

These changes require retail brands and their wholesale customers to develop more flexible and responsive supply chains. One metric key to successfully navigating this transformation will be the velocity of information flows from the end customer upstream through the retailer and back to the supplier.

“To mitigate stock-outs while limiting exposure to high inventory levels, leading retailers will secure their supply base and consistently source products to arrive into their supply chain just in time,” KPMG wrote in a recent report titled The Future of Retail Supply Chains.

“However, when most retailers take stock and properly analyze their supply chains, they find that almost all of their supply chain processes and policies are designed to compensate for information latency and demand uncertainty,” KPMG found.

End-to-end freight visibility is an obvious precondition for speeding the flow of information pushed to all partners in a value chain, but that level of technology is only now being adopted by the majority of shippers, third-party logistics providers, and transportation companies in the space.

“For 78% of participating [consumer packaged goods] companies, end-to-end data visibility—from point-of-sale data to GPS tracking data on shipments—is a priority. Although they are accumulating more, and more valuable, data, most companies lack the tools and systems to analyze it and apply insights from it,” wrote Boston Consulting Group in reference to its 2018 survey of more than thirty leading CPG companies.

The goal of retail brands and their wholesale customers should be to hit the sweet spot between minimizing both stock-outs and carried inventory. That means building an integration layer across the value chain so that demand information is communicated to suppliers automatically, and shipments can be planned, prepared, submitted, and executed without human intervention or delay.

“Our automated wholesale routing is driving value for both the retail brand and the wholesale customer,” said Chris Kirchner, chief executive officer of Slync. “Realtime anomalies in brick-and-mortar inventory levels instantly trigger processes at upstream suppliers to keep product moving and demand fulfilled.”

KPMG found that shifting to a demand-driven retail supply chain model could result in a 1-4% improvement in sales, a 5-10% reduction in operating expenses, and a 20-30% reduction in inventory. Instead of slow, linear information flows that take time and accumulate errors as emails and phone calls move up the value chain to manufacturers, KPMG said that demand-driven supply chains take on the characteristics of networks.

“Effective [demand-driven supply chains] leverage network-based models that allow all participants to work as one virtual organization. They are also effective collaborators as they share big data across the network and respond quickly to changing customer demand signals,” KPMG wrote.

When retailers face pressure from volatile, unpredictable demand signals and e-commerce competitors, they in turn apply pressure to their suppliers in the form of strict on-time and in-full fulfillment requirements. If suppliers do not hit certain targets, a percentage of the value of the shipment is extracted as a fee — a chargeback — is extracted by the wholesaler. Walmart, for example, charges 3% on every trailer that’s late, while Target charges 5%.

The more automated a wholesale customer’s receiving processes and distribution centers are, the stricter the fulfillment requirements become. A large e-commerce retailer requires its suppliers to use identification numbers on each case and to adhere to specific pallet requirements including both size, orientation, and packaging — all to enable  touchless, automated de-palletization and conveyor receiving.

“Slync’s platform allows retail brands to build shipments for their wholesale customers that are automatically compliant with their routing requirements, whether it’s transit time, temperature control, or packaging and unloading,” Kirchner said. “Manually constructing orders for multiple customers, all with different requirements, is labor-intensive, costly, and doesn’t actually work very well. With artificial intelligence, Slync quickly determines the SKUs, facilities, transportation solutions, and customer destinations needed to respond to customer demand signals as they emerge.”

Implementing new technology and integrating it across several supply chain partners can be expensive and hard, which is why many retail brands and their wholesale customers rely on legacy enterprise resource planning and transportation management systems. As their operations evolve, these companies pay high customization fees to their software providers and remain captive to obsolete technology.

Slync’s platform works differently: it’s a cloud-based integration layer that pulls data from siloed on-premise systems and then restructures it so that it can be analyzed by machine learning algorithms. The automated wholesale routing offering represents a small IT investment for retail brands and offers the benefits of providing them with an integrated portal with their wholesale customers. On the other side of the supply chain, Slync’s platform lets wholesale customers generate an additional return on the investment they’ve already made in software.

“Heavily automated, fully integrated demand and supply planning breaks traditional boundaries between the different planning steps and transforms planning into a flexible, continuous process,” wrote McKinsey analysts Knut Alicke, Daniel Rexhausen, and Andreas Seyfert in a recent report titled “Supply Chain 4.0 in consumer goods.”

That’s the vision Slync has for creating more robust retail brand – wholesale customer supply chains: faster, more flexible, more granular, more accurate, and more efficient movement of information and goods.

“With advanced system support, 80 to 90 percent of all planning tasks can be automated and still ensure better quality compared with tasks conducted manually,” McKinsey concluded.

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John Paul Hampstead, Associate Editor

John Paul writes about current events and economics, especially politics, finance, and commodities, and holds a Ph.D. in English literature from the University of Michigan. In previous lives John Paul studied Shakespeare in London and Buddhism in India, but now he focuses on transportation and logistics in the heart of Freight Alley--Chattanooga. He spends his free time with his wife and daughter herding cats, collecting books, and walking alongside the Tennessee River.

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