Industry Insights

On Shelf Availability as a Supply Chain Metric is so 1980s

Supply Chain Manager? Forget On Shelf Availability

A little nostalgia first if I may. When I first started off as a management consultant I worked in a group that was called marketing and operations. Implicit in the name of the group was the assumption that the claims and promises made by the brand had to be delivered through a supply network. If that supply network, and all of the customer services and logistics associated with it, did not work well… Well, the price was ultimately paid in brand equity.

Of course the KPI’s we all apply to operations tend to be on shelf availability, and on time in full. These metrics have driven the design of supply networks and form the basis of many assumptions about how to improve them. At the end of the day, who doesn’t want better on shelf availability?  Well, those who don’t have a retail outlet shelf perhaps.

I see a problem with this view of the world. If you think about my starting point I am suggesting that looking at the supply chain purely from the perspective of bricks and mortar, B2B collaboration isn’t enough. You have to accommodate the consumer and the myriad demand signals they generate (no convenient weekly order cycle there).

It is time to think hard about the rise of e-commerce, subscription models and Amazon Dash buttons. Now the supply chain extends directly to the point of consumption from a manufacturers point of view, so now we have to worry about reverse logistics.  What about finer and finer supply chain segmentation?

Supply collaboration is cool again

What was collaborative planning, forecasting and replenishment (CPFR) has morphed into more sophisticated forms of collaboration that include shared transport and warehousing between retailers and manufacturers.

Certainly in the years since I started working in the CPG industry the relationship between brands and retailers has changed. The retailers are bigger, more demanding. Many have tough targets around sustainability, and social responsibility.  The stakes are higher.

As a result, retailers are more demanding of visibility into the data held by brands (and the other actors in the supply network).  Together with changes in today’s business models, created by digital business,  this is driving deeper and broader collaboration.

New technologies, new players in the supply network

The supply chain is going digital fast.  Tools for information sharing and decision-making are improving all the time.  Demand Signal Repositories are de rigour for improving forecast accuracy.  Warehouse automation and robotics are becoming more autonomous.

Next step – autonomous trucks (see this example) and the entry of companies such as Uber into freight (actually, they are already shipping beer as a proof of concept!).

The role of analytics in improving customer service and logistics across extended supply networks grows in importance year by year. Everybody uses operational research techniques to optimize their networks, but new multi-objective optimization techniques (such as those found in IBM Watson) are making it easier to decide on network reconfiguration trade-offs-should I minimize CO2 emissions or costs, for example is old thinking.

As I discussed a few weeks ago, technologies such as block chain are starting to reinvent the way that contracts are established across the extended supply network. Sophisticated text analytics techniques are making it possible to look inside those contracts and see whether the terms and conditions are compliant, for example, with procurement intent (IBM use this approach in our own supply network with a tool called “Bluehound” that sniffs out dodgy legal contracts).

Of course, the internet of things (IOT – the phrase originally used by Kevin Ashton of P&G in 1999 when he was working on supply chain optimization and RFID) is starting to revolutionize the way that goods are tracked through supply chains. Hardware such as RFID and NFC are becoming commonplace, connected and more intelligent as a result.

Cognitive has arrived in the supply chain

Cognitive computing is starting to make a difference to. For example, earlier this year I worked with the team in IBM to create a cognitive supply chain application to help manage transport and logistics risks in the primary (agricultural) supply chain. Take a look at the screenshot below:

Cognitive Dashboard

Let me explain what you’re looking at. This is a SAP HANA application designed for people involved in the movement of agricultural commodities around their supply network. You know the sort of thing-tomatoes flowing into a factory where they will be turned into cans of soup, for example. The application takes a variety of sensor sources (ships, trucks etc) and movement data from underlying SAP systems, and mixes it with unstructured data such as driver log-books, social media, news and weather.  It then applies some cognitive computing magic to predict whether you are likely to have a problem or not, and whether risks are going up or down.

Where next?

Is it too much of a stretch to think that supply networks In the future will be able to self-organize based on real-time signals from every part of the network?  Maybe, but network design will certainly involve more structural flexibility to take advantage of finer-grained demand sensing, automation (factory, warehouse and logistics) and digitalization of global trade lanes.  If this vision does come true, I am sure that OSA will not be the key metric – perhaps it will be “in home availability”?

In the future it won’t be enough to think of a supply network in CPG being about efficiently fulfilling a (retail) customer request – the on-shelf availability metric. The future supply network design will have to address a hyper-personalized “consumption end point” (that is you and me in English). This means omni-channel operations as the new normal, and micro-segmentation of the supply chain to match.

Regardless, channel collaboration will be even more important, and not just between manufacturer and retailers, but also involving hauliers, warehouses, suppliers.  Maybe we will also see the emergence of a new class of supply chain integrator, well versed in IoT, cognitive and automation.  5PL anyone?

IBM, Distinguished Engineer

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