The supply chain is made up of a succession of interconnected business processes that moves the flow of products and services from original supplier to final customer. These can include suppliers of raw materials, equipment, manufacturers of parts or whole products, importers and wholesalers to name a few.
The importance of a retailer’s supply chain cannot be understated. A team of Accenture, INSEAD and Stanford University researchers has drawn statistical correlation between companies’ financial success and the depth and sophistication of their supply chains.1 According to the research, companies with best practice supply chain management demonstrated a higher than industry average growth rate.
The instability of the current global economic climate has had a profound effect on consumer confidence which had already been influenced by escalating petrol prices and successive interest rate rises earlier in the year. Findings from the September ARA Australian Retailers Index research revealed Australian retailers reported falls in performance in the key indicators of sales, employment and profitability in the last past quarter.
Maintaining an efficient supply chain goes well beyond keeping overheads to a minimum. In a fiercely competitive retail market, customers have little tolerance for out of stock items and long waits for products. With fewer loyal shoppers today, it only takes one bad experience to send them and their money to the competition. More than ever, customers cannot be taken for granted and it is critical to meet their demands through efficiencies in supply chain management.
Operating in a consumer-driven market and matching supply to demand is one of the key focuses of supply chain management. The challenge for most retailers is servicing customer demands while not overstocking products that are not in demand.
According to the Australian Government’s Department of Broadband, Communications and the Digital Economy, the ability to move data at the same time as physical goods is the essence of an efficient supply chain. It says that firms lacking this ability will fail to be competitive.
The proliferation of Information and Communications Technologies (ICTs) has played an integral role in increasing retail supply chain efficiencies. Bar code, radio frequency identification devices (RFIDs) and remote sensors have all improved our ability to replenish stock, accurately measure movements from end to end, assess a product’s success or failure and collaborate with our suppliers so that consumer demands are met with as little wastage as possible. Technology alone will not be enough to achieve these goals. Best practice supply chain management involves going beyond a company’s four walls.
Successful retailers have understood there are limits to the efficiency that can be achieved within their own organisation. Retail businesses with good supply chain management protocol work in collaboration with ‘trading partners’ as opposed to ‘suppliers’ or ‘vendors’.
By integrating each company’s internal systems to those of its trading partners, the channels of communication are streamlined enabling trading partners to become more attuned to the demands of its client’s shop floor. Taking a more collaborative approach, a retailer together with his or her trading partners have more resources at their disposal to reduce inefficiencies or wastage.
One of the challenges retailers face when finding good trading partners is there are still many companies relying on simple technology such as phones, faxes, post or paper purchase orders despite our progress in technology. Unfortunately, manual systems are susceptible to inefficiencies, human error and are time consuming. One error can flow through the entire supply chain costing more than one business in the chain valuable time and money.
GS1 Australia, which sets global data integration standards through barcoding, electronic product code (EPC), RFID and other devices says to achieve best practice supply chain management there must be a commitment to integration across supply chain partners. It also indicates that capturing accurate data at the least cost and effectively processing the information within application systems, with total integration in mind is critical to creating an effective supply chain.
Technologies facilitate these means to an end, but to achieve complete integration it is important all partners in the supply chain are speaking the same language. The adoption of open global standards in data integration has ensured companies can easily exchange information and conduct business without unnecessary communication obstacles or bottlenecks.
An exemplary case of best practice supply chain management is European clothing manufacturer/retailer Zara. Zara’s store managers constantly send customer feedback to in-house designers using hand held devices to inform them in real time of what is happening on the shop floor. Designers are quickly able to ascertain which merchandise is moving and what should be culled resulting in tighter linkages between supply and demand and more efficient inventory management due to fewer unsellable products being left on the shop floor or in the stock room. This together with a range of other supply chain innovations during the manufacturing process enable Zara to deliver new styles to their stores in three to six weeks, as opposed to the industry standard of five months.
Zara is a retail success story. Through supply chain innovations, it is able to deliver 11,000 new fashions to market every year and is considered a leader in the European retail fashion industry. The company now has 450 stores worldwide and its expansion continues unabated.
Retail in Australia is a colourful, diverse industry with many success stories. And, like Zara, if you look behind the scenes you will find a myriad of trading collaborations utilising state of the art technology to ensure these businesses deliver what they promise to their customers in the most cost efficient way.
1 D’Avanzo, R. et al. (2003) “The Link Between Supply Chain and Financial Performance”. Van Wassenhove Supply Chain Management Review.
