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Inventory Management Discussion Point Two Major Processes to Manage Supply Chain Inventory

December 2008

2Copyright © 2004 Accenture All Rights Reserved.

How to use this Deck

Store Operations

Deck

Completed

Early August

Network Optimization

Completed

TBD

Inventory Deep

Executive Deck

Completed

mid-July

Executive Summary

Deck

Completed

Description and key activities for each component of the supply chain

Supply Chain Components

Matching supply with expected demand, tightly coupled, smaller supply chain

Synchronization

Integration of the demand and supply planning process

Integrated planning

Description and steps of how to determine logistically distinct business units and how it feeds into the different demand characteristics/operating model

Logistically Distinct Businesses

(segmented supply chains)

Flow as an enablerFlow

Summary of 2 key processes for inventory management

2 processes

DescriptionTopic

Description and key activities for each component of the supply chain

Supply Chain Components

Matching supply with expected demand, tightly coupled, smaller supply chain

Synchronization

Integration of the demand and supply planning process

Integrated planning

Description and steps of how to determine logistically distinct business units and how it feeds into the different demand characteristics/operating model

Logistically Distinct Businesses

(segmented supply chains)

Flow as an enablerFlow

Summary of 2 key processes for inventory management

2 processes

DescriptionTopic

Deep Dive Decks

.This deck is on the two major processes to manage retail inventory

Expected Use: As a supplement to one of the Summary decks of the Inventory Offering for Retail Supply Chain

Included: Overview of the 2 processes, why they should be used, demand and supply characteristics and segmentation, benefits derived, examples

Remove this page before using; this Is only to illustrate how and

with what Additional materials to use this deck


Topics to be Discussed

Overview: How should different product categories

segmented to optimize inventory management? What are the two major processes we think clients

should use to manage inventory? What are the benefits associated with our

approach?

- Overview -


Establishing the two distinct inventory management processes is part of a comprehensive inventory management program for retail supply chain

- Context -

Inventory Management is the conductor of the symphony for Retail Supply Chain execution: Inventory Management is

critical for customer service

Inventory management has a major impact on supply chain cost and effectiveness

Inventory management is what initiates all merchandise movement and controls the timing within the supply chain


(Continued)

Establishing two major inventory management processes will better address retail inventory

• Foundational: Regular Replenishment, basic products, short lead times, reliable domestic vendors, reliable supply

• Highly Variable: Event, one-time, new items, short lifecycle, import/private label

When these two processes are designed properly, it will drive supply chain benefits through:

• Synchronization• Standardization/Integration• Alignment

of the Supply Chain activities

- Context -


The five areas of the supply chain must all be linked and synchronized to provide maximum benefit:

Service Level & Inventory

productivity

Ordering Practices

ReliableVendors

Merchandising Practices

Store Operations

Reliable DCs

• Need to synchronize retail flow closer with customer demand

• Need an integrated end-to-end standard process

Address all areas because addressing only one or two areas provides no significant improvement

Strive for simple and repeatable, not perfect

Develop an end-to-end RONA trade-off model, capture in playbook, and execute routinely by organization

• Align organization metrics and goals to make proper trade-offs between service levels and inventory productivity

1) ordering practices, 2) merchandising practices, 3) reliable vendors, 4) reliable DCs, 5) store operations

- Supply Chain Components -


Inventory Optimization is enabled by efficient and integrated end-to-end inventory management processes that balance service levels and inventory productivity

The end-to-end supply chain management is enabled by to two distinct inventory management processes.


productivity

Ordering Practices

ReliableVendors


Store Operations

Reliable DCs

OrderingPractices

MdsgPractices

ReliableVendors

ReliableDCs

StoreOperations

•••••

HighlyVariable

Routine(Stable)

PlanogramAlignment

ResponsiveSupply &On-TimeDeliveries

ReliablyIn-Stock

Perpetual &Overstock

Maintenance

AppropriateForecast &

VendorCollaboration

LifecycleManagement

Reliable & Compliant

TimelyFlow of Goods

(with peakcapacity)

PlanogramExecution

Key Success Factors

Key Success Factors

OrderingPractices

MdsgPractices

ReliableVendors

ReliableDCs

StoreOperations

Foundational Routine(Stable)

PlanogramAlignment


ReliablyIn-Stock


VendorLifecycle

ManagementReliable & Compliant

TimelyFlow of Goods

(with peakcapacity)

Key Success Factors

Key Success Factors

Foundational

Highly Variable

Regular Replenish-ment

Product Characteristics

EventOne-TimeNew ItemsShort LifecycleImport/PrivateLabel

Managed Interdependencies

- Two Major Processes -


Demand Characteristics• Promotion spikes• Seasonal products• Regular, stable demand

Segmenting products into two key categories based on their characteristics allows retailers to tailor ordering, merchandising, and store ops to better match supply and demand

Supply Characteristics• Lead times• Life Cycles Reliable Vendors• Constrained supply

OrderingPractices

MdsgPractices

ReliableVendors

ReliableDCs

StoreOperations

•••••

HighlyVariable

Routine(Stable)

PlanogramAlignment


ReliablyIn-Stock


Maintenance


VendorCollaboration

LifecycleManagement


TimelyFlow of Goods

(with peakcapacity)

PlanogramExecution

Key Success Factors

Key Success Factors

OrderingPractices

MdsgPractices

ReliableVendors

ReliableDCs

StoreOperations


PlanogramAlignment


ReliablyIn-Stock


VendorLifecycle

ManagementReliable & Compliant

TimelyFlow of Goods

(with peakcapacity)

Key Success Factors

Key Success Factors

Foundational

Highly Variable

Regular Replenish-ment

Product Characteristics

EventOne-TimeNew ItemsShort LifecycleImport/PrivateLabel


- Overview -


• DC & Vendors with highly reliable supply with short lead times

• Demand forecast (moderate accuracy) to support “Addition Lift”

• Timed Rollout, pipeline fill and fast trending

• Best Forecast, appropriate release schedule with defined exit

• Good forecast, responsive during selling period with defined exit

• Long lead time supplier orders based on good forecasting

We have designed two distinct processes to address differences in foundational vs. highly variable supply and demand patterns

Retail

1a. Replenishment – Regular

1b. Replenishment – Ad Event

1c. Replenishment – New Item

2. Promotional/One-Time

3. Short Lifecycle

4. Import/Private Label (supply driven)

Supply andDemand Patterns Primary Characteristics

Foundational

HighlyVariable

MajorProcesses

• Foundational: Computer-generated order (store & DC), centralized controls, automated process• Highly Variable: More forecast-dependent, buyer and computer-assisted ordering

- Multiple Demand and Supply Characteristics Segment into Two Major Processes -


Process Design Must Integrate Ordering, Merchandising, Vendor Management and Store Operations

FoundationalProducts

Flow product with short lead time from DC/vendor in response to store level demand

Order, allocate, and flow product based on derived demand forecasts

HighlyVariableProducts


• Event• One-Time• New Items• Short Lifecycle• Import/Private

Label

Two integrated cross-functional processes encompassing the core supply and demand patterns need to be developed to support in-stock level

OrderingPractices

MdsgPractices

ReliableVendors

ReliableDCs

StoreOperations

•Regular •Replenishment

Tightly linked end-to-end process and execution

- Two Major Processes -


Based on their characteristics, we can decide whether the category would best be served by replenishment, allocation, or other operating model

Product Categories (based on supply/demand characteristics)

Typical Characteristics Inventory Methodology

Basic Products - Regular Replenishment

•In-line items •Long product life cycles •Predictable demand

•Frequent store replenishment orders•Reliable source of supply.

Replenishment

Regional Commodities •Bulk build material•Merchandise that requires a high degree of regional or local control

Replenishment

Seasonal – Push

•Short product lifecycle•Highly variable demand (e.g.fashion merchandise, special buys)•Push Allocation

Allocation

Seasonal – Pull

•Same as above with subsequent store shipments based on initial sales, allocation or replenishment orders

Replenishment & Allocation

Import Sourcing •Long lead time sourcing•Proprietary brands

•Imports Long lead time ordering process

Local Suppliers •Merchandise provided by local suppliers, local requirement impact mix and varieties

Allocation & Replenishment

Special Order •Non-stocked items that are ordered from suppliers after customer purchase Special Orders

Basic Products - Vendor Managed Inv.

•Vendor Managed Inventory•May include in-store responsibility for shelf maintenance

Vendor Managed

Replenishment

Allocation

VMI

Non-Core Process

Operating Models

Local/ Special Orders

Illustrative- Product Categories and Their Characteristics -


Streamlining the end-to-end processes that incorporate the components of the supply chain will help sustain the synchronization of supply and demand

Foundational

Flow product with short lead time from DC/vendor in response to store level demand

Order, allocate, and flow product based on Staples derived demand forecasts

HighlyVariable

OrderingPractices

MdsgPractices

ReliableVendors

ReliableDCs

StoreOperations

StrategicImperative

Routine(Stable)

PlanogramAlignment


ReliablyIn-Stock

Perpetual &OverstockMaintenance

AppropriateForecast &VendorCollaboration

LifecycleManagement


TimelyFlow of Goods(with peakcapacity)

PlanogramExecution

Key Success Factors

Key Success Factors

Tw

o M

ajo

r P

roc

es

se

s

• Regular Replenish-ment

• Event• One-Time• New Items• Short

Lifecycle• Import/Private

Label

See Appendix for Details on Each Process

- Key Success Factors -


Coordination across the entire Supply Chain must be a tightly integrated process since breakdown in any one area will sub-optimize the effort and overall benefits.

ReliableDCs

StoreOperations

Failure for one will cause failure for effort

Determines correct order quantity and IA releases order on timely basis

Execution Merchandise ordered aligns with planogram

Vendor fulfills complete orders, but does not ship to DCs on-time

DCs receive, put away in a timely manner and picked/ shipped to store

Accurate shelf inventory as a result of regular cycle counts

Breakdown in Vendor was selected only to illustrate a point. Any area could have been selected for this purpose.


PlanogramAlignment


ReliablyIn-Stock


Maintenance


productivity

Ordering Practices

ReliableVendors


Store Operations

Reliable DCs Reliable

Vendors

- Consequences of Un-Integrated Processes -


Example: Tooth Brushes (Regular Replenishment)

1. Ordering Practices: Store orders (from DCs) to cover the

next few weeks of demand and presentation requirements

Store Service level set by category and “importance” of SKU groupings

DC orders on set periodic schedule

2. Merchandise Practices: Relatively stable product transitions

based around POG schedule Promotions / exceptions addressed as

“supplemental” process Case Pack and POG alignment

3. Reliable Vendor Supply: Very Responsive Supply with minimum

forecasting Metrics to drive continual Improvement

(ASN based) Inbound transportation with tight time

execution

4. Reliable DC Supply: Rapid put away and short order to fill

times High in stock controlled by inventory

managers Frequency if store orders average 2.5 to

3 times/store/wk

5. Store Operations: Maintain Perpetual Inventory Accuracy Dock to POG location execution

- Example -


Example: Lawn Chairs(Seasonal Demand)

1. Ordering Practices Develop “Lifetime Quantity” based on

marketing, merchandising, like item and system guidance

Allocation to stores based on expected relative sales

Establish vendor and DC release and holdback schedules

2. Merchandise Practices Typically event and promotional

merchandise EOL pricing, promotions and exit

management to maximize lifetime revenue and margin

Collaboration with vendor and supply chain providers necessary to provide reliable source of supply and not exceed supply chain capacity

3. Reliable Vendor Supply Vendors must meet ship date to allow

timely and non-expedited flows to stores

Accurate ASNs to allow last minute trigger distribution updates

Staples currently has more severe charge back for orders exceeding 60 day lead time

4. Reliable DC Supply Develop event processing and value

added services Must provide timely processing and

expediting for late shipments• With appropriate external or internal

chargebacks

5. Store Operations Space location and POG decisions

support over an item’s life not just initial placement

Stores must display and stock in a timely manner

Accurate RTVs, DC recalls and transfers Display needs to flex with demand

- Example -


Establishing the two distinct inventory management processes will help fulfill the guiding principles of an inventory management program

Synchronization of customer demand to supply

Standardization and Integration of the internal process execution by the inventory management team

Alignment of goals and metrics for optimal financial management

- Strategic Mission of Two Inventory Management Processes -


Benefits

Treating categories differently leads to: Better in-stock levels Better customer service levels Supply more closely synchronized with

demand, so the customer gets exactly what they want, when and where they want it

More responsive to trends or fashion More accurate forecasts lead to less

need for markdowns

- Outcomes of Streamlining the Processes -


What Does it All Mean?

• A “one-size-fits-all” supply chain is not the best strategy – by addressing the differences in product categories, retailers can design processes to optimize supply chain performance for different types of products, such as fashion goods, seasonal items, or items on promotion

• You must strive for end-to-end integration - address every area simultaneously to achieve benefits. Focusing on only one area at a time will not give any long-term benefits

- Conclusions -


Appendix/Extra Slides

- Appendix -


The Foundational Program is focused on establishing operational excellence across five supply chain activities simultaneously.

4. Reliable DC Supply

• Rapid put away and short order to fill times

• High in stock controlled by inventory managers

• Frequency if store orders average 2.5 to 3 times/store/wk

5. Store Operations

• Maintain Perpetual Inventory Accuracy

• Dock to POG location execution

3. Reliable Vendor Supply

• Very Responsive Supply with minimum forecasting

• Metrics to drive continual Improvement (ASN based)

• Inbound transportation with tight time execution

1. Ordering Practices

• Store orders (from DCs) to cover the next few weeks of demand and presentation requirements

• Store Service level set by category and “importance” of SKU groupings

• DC orders on set periodic schedule

2. Merchandise Practices

• Relatively stable product transitions based around POG schedule

• Promotions / exceptions addressed as “supplemental” process

• Case Pack and POG alignment

End State

• Regular Replenishment

Foundational

OrderingPractices

MdsgPractices

ReliableVendors

ReliableDCs

StoreOperations

Routine(Stable)

PlanogramAlignment


ReliablyIn-Stock


Maintenance

Key Success Factors

• Store and DC ordering practices leveraging short lead times and reliable supply

• Vendor Reliability, short lead time and compliance

• DC Operational Excellence (transportation/ receiving)

• Maintain store perpetual and measure customer experience

• POG-Case Pack-OUTL Alignment

Key Value Levers

- Foundational Project – Basic Replenishment -


Alternative Slides

Foundational ProjectBasic Replenishment


• Rapid put away and short order to fill times

• High in stock controlled by inventory managers

• Frequency if store orders average 2.5 to 3 times/store/wk

5. Store Operations

• Maintain Perpetual Inventory Accuracy

• Dock to POG location execution


• Very Responsive Supply with minimum forecasting

• Metrics to drive continual Improvement (ASN based)

• Inbound transportation with tight time execution


• Store orders (from DCs) to cover the next few weeks of demand and presentation requirements

• Store Service level set by category and “importance” of SKU groupings

• DC orders on set periodic schedule


• Relatively stable product transitions based around POG schedule

• Promotions / exceptions addressed as “supplemental” process

• Case Pack and POG alignment

Future State

• Regular ReplenishmentFoundational

OrderingPractices

MdsgPractices

ReliableVendors

ReliableDCs

StoreOperations

Routine(Stable)

PlanogramAlignment


ReliablyIn-Stock


Maintenance

Key Success Factors

- Impact of Flow -


Successful execution of highly variable demand patterns requires timely and responsive process supply chain integration throughout entire product lifecycle.

Highly Variable Project – Allocation/Event Planning and Execution


• Develop event processing and value added services

• Must provide timely processing and expediting for late shipments

– With appropriate external or internal chargebacks

5. Store Operations

• Space location and POG decisions support over an item’s life not just initial placement

• Stores must display and stock in a timely manner

• Accurate RTVs, DC recalls and transfers

• Display needs to flex with demand


• Vendors must meet ship date to allow timely and non-expedited flows to stores

• Accurate ASNs to allow last minute trigger distribution updates

• Staples currently has more severe charge back for orders exceeding 60 day lead time


• Develop “Lifetime Quantity” based on marketing, merchandising, like item and system guidance

• Allocation to stores based on expected relative sales

• Establish vendor and DC release and holdback schedules


• Typically event and promotional merchandise

• EOL pricing, promotions and exit management to maximize lifetime revenue and margin

• Collaboration with vendor and supply chain providers necessary to provide reliable source of supply and not exceed supply chain capacity

Future State

• Event• One-Time• New Items• Short Lifecycle• Import/Private Label

HighlyVariable

OrderingPractices

MdsgPractices

ReliableVendors

ReliableDCs

StoreOperations


VendorCollaboration

LifecycleManagement


TimelyFlow of Goods

(with peakcapacity)

PlanogramExecution

Key Success Factors • Pre-season: Collaboration around events, forecasts, store allocation etc.

• During season: Flow of goods, timing of receipts, service levels setting

• Post-season: End-of-Life Management, OTB constraints

Key Value Levers

- Impact of Flow -


Alternative Slide


• Develop event processing and value added services

• Must provide timely processing and expediting for late shipments

– With appropriate external or internal chargebacks

5. Store Operations

• Space location and POG decisions support over an item’s life not just initial placement

• Stores must display and stock in a timely manner

• Accurate RTVs, DC recalls and transfers

• Display needs to flex with demand


• Vendors must meet ship date to allow timely and non-expedited flows to stores

• Accurate ASNs to allow last minute trigger distribution updates

• Staples currently has more severe charge back for orders exceeding 60 day lead time


• Develop “Lifetime Quantity” based on marketing, merchandising, like item and system guidance

• Allocation to stores based on expected relative sales

• Establish vendor and DC release and holdback schedules


• Typically event and promotional merchandise

• EOL pricing, promotions and exit management to maximize lifetime revenue and margin

• Collaboration with vendor and supply chain providers necessary to provide reliable source of supply and not exceed supply chain capacity

Future State

• Event• One-Time• New Items• Short Lifecycle• Import/Private Label

HighlyVariable

OrderingPractices

MdsgPractices

ReliableVendors

ReliableDCs

StoreOperations


VendorCollaboration

LifecycleManagement


TimelyFlow of Goods

(with peakcapacity)

PlanogramExecution

Key Success Factors

Highly Variable ProjectAllocation/Event Planning and Execution

- Impact of Flow -

Copyright © 2004 Accenture All Rights Reserved. Accenture ...

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