Managing Tomorrow's Supply Chain Today

Jul 11, 2006

Jeff Vance

Collaboration is a popular buzzword in the enterprise, but it’s a concept that is easier said than done. Take supply chains for instance. Traditionally, supply chains have been anything but collaborative.

The relationship between retailers and suppliers has been transactional at best or adversarial at worst. Customers either placed orders, a one-way form of communication with little or no feedback, or they turned to two-way communication when something went wrong.

Communication was not about mutual benefits, but rather about haggling over prices, complaining about late shipments, and disputing the quality of products.

Not so anymore. The supplier/buyer relationship is changing as collaborative applications become the go-to method of communications between the two. Planning, forecasting, and fulfillment tools give both ends of the supply chain real-time access to actionable information. Both suppliers and customers see updated data on inventory levels, price fluctuations, production capabilities, and shipping progressions.

“Supply chains are evolving,” said Mickey North Rizza, research director at AMR Research. “The ideal supply chain encompasses the entire product lifecycle, from product development through to promotions and customer support.”

To track a product’s entire lifecycle, however, everyone along the supply chain must have a voice, which is why collaboration is essential.

“The goal is to manage supply chains based on real-time information,” said John Cummings, chief marketing officer for i2 Technologies, a provider of supply chain management solutions. “Entire industries are realizing they run supply chains incorrectly, using what we call a ‘stocking’ approach.”

According to Cummings, retailers traditionally put products on shelves and waited for consumers to buy them—an "if-you-stock-it-they-will-buy" mentality.

Not surprisingly, this model isn't nimble, doesn't accurately measure consumer demand, and overlooks a great deal of relevant information.

“Retailers are shifting from a push mode to a pull mode,” Cummings said. “As consumers express demand, the supply chain is managed to meet that demand—as it emerges.”

Missed opportunities, like out-of-stock items, trigger no-brainer solutions: Ship in smaller cases, so stores can order more frequently.

One industry that has suffered due to stocking is the entertainment retailing industry. “The entertainment business has the shortest shelf life of any business,” said Mike Quinn, CEO of Eqos, a provider of global sourcing and supplier management solutions.

Within hours, a title may skyrocket or crash and burn, and retailers must adjust their supplies at a moment’s notice to match fluctuating demands. A stocking approach can’t do that.

One such retailer, Virgin Megastores, realized it needed to change its ways to compete in today’s volatile entertainment market. Virgin operates 125 Megastores in the U.K. and Ireland, with additional outlets in the U.S., France, Australia, Greece, and several other countries.

Each day, more than a million people visit Virgin stores and their tastes vary wildly. Virgin has nearly 200,000 active entertainment and media product lines, which come from 120 different suppliers. The supplier list is ever changing, and many obscure and specialty suppliers have limited IT resources. Adding to the complexity is the fact that Virgin executes many product and time specific deals, involving discounts, promotions, or package deals.

That’s a whole lot of complexity to manage across a heck of a lot of suppliers and keeping everyone on the same page proves difficult.

“We realized that a more structured collaborative platform was becoming essential,” said Olivia Ocaña, head of business systems at Virgin. “We needed to build formalized deal and terms management applications that could be used by both our buying teams and all suppliers no matter what their size.”

Virgin turned to Eqos to help it develop a system for managing its supplier relationships. As Eqos dug into Virgin’s supplier relationships, they realized they had a unique supply-chain challenge on their hands.

“We found that Virgin’s challenge wasn’t really about global sourcing, as is the case with many retailers,” said Quinn. “Rather, Virgin needed a way to automate how they manage deals, and they needed to do so in real-time.”

Eqos developed such a system, OTIS. A web-based system, OTIS handles both standard and one-off deals. With OTIS in place, buyers agree to terms with suppliers for a specific deal. The deal is then tracked, so both sides can measure the results of end sales, promotions, and other variables.

Details of the deal are fed into both Virgin’s retail merchandise management system and its BI (business intelligence) system. With granular deal measurement in place, Virgin can do such things as increase discounts if certain volumes are met or change a promotion if a title underperforms.

Deals can be extremely time sensitive, and they vary from store to store. If a particular band is in town, a particular store will want to devote more shelf space to its CDs. Without OTIS, this would be done haphazardly. With OTIS, specific promotions and discounts can follow the band as it tours. OTIS can also handle demand spikes if, say, a performer wins an award. More shelf space is devoted to that act as long as the demand stays strong.

For Eqos the key to OTIS’ success is bringing deal-making back into the supply chain. “People use the term ‘supply chain’ as if it’s divorced from buying and selling,” Quinn said. “It’s not. Managing a supply chain is predicated on buying and selling. Systems like OTIS integrate buying and selling decisions into supply-chain management.”


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