The traditional supply chain setup 20 years ago was so much easier to understand. Businesses had connections that supplied goods and they had customers that wanted to buy their stuff.
The main duty of an inventory planner was relatively simple: buy the right stuff at the right time to meet the customer demand without holding too much stock. Perhaps it wasn’t quite that simple for everyone, but that was a planner’s essential task.
And then the internet started changing the rules of supply chain management in a major way.
New ways for businesses to communicate and collaborate
The first big change started with B2B – Business-to-Business connections and communication. Planners were able to speed up the buying process because they could link their systems to the supplier, and when they created an order, it “magically appeared” over the internet in their suppliers’ systems.
That created incredible efficiency and speed that generated a large boost in productivity, and that benefited everyone. Terms like “collaborative supply chains” were suddenly thrown around at conferences like confetti at a wedding. Those were good times, but the game was changing yet again.
Suppliers used pricing, EDI interfaces, and volume discounts as a way to lock their customers into buying from them on an ongoing basis. Today, there are competitor suppliers popping up from across the globe, which has made it harder for suppliers to lock in their customers. The demand on the supplier has become much more unpredictable as a result.
Worse, due to ongoing financial pressures worldwide, those critical sales representative teams have been reduced to a handful of people who are responsible for more customers than ever before. So much for supply chain collaboration!
How businesses forecast sales now
How does this supplier – who has to produce products based on a forecast – accurately predict what portion of the pie they will get and when? Forecasting for suppliers has gone from being a collaboration and reasonably predictable to taking a shot in the dark and hoping for the best.
While there’s been a lot of movement from the B2B side of late, the more interesting evolution is on the B2C side. In the past, we had customers walking into brick-and-mortar stores to look at and touch products, followed by a way to purchase the products right there. It’s not breaking news to point out how this has dramatically changed. Customers still want the brick-and-mortar experience for some products, but they also demand the convenience and competitive pricing found online.
That means practically anyone with a website and a little knowledge can get into the market and start undercutting pricing. They have no brick-and-mortar shop, so they have no brick-and-mortar costs. Their lower prices can erode sales from others in the market, just like that.
To take the point further, companies like Amazon, which were fully online to start, have started to add pick-up locations that offer more of a brick-and-mortar immediacy. Similarly, retail store giants have overhauled their operations to include an online shopping presence and home delivery.
There is no end in sight to these changes in retail, especially because the internet is only going to connect everyone even more that it already has. Both online and brick-and-mortar stores will continue to provide value to consumers and they will continue to succeed.
The next moves in supply chain management
For those concerned with supply chain management, the challenges faced by online connections will remain. Forecasting, for example, is only going to get more complicated, which means it’s a serious risk. Flexible supply chain technology and a quality forecasting engine are absolutely paramount today.
The world is more connected, but there are also more moving targets in the supply chain. A tech solution is required, even for smaller businesses, to handle items like forecasting and inventory replenishment policy in this complex business environment. Retail establishments can’t afford to carry huge amounts of stock anymore due to the increasingly nimble nature of online competition.
Instead of being hobbled by this new way of purchasing, businesses must get creative and harness the power of this connectivity. That’s the key aspect behind integrating a forecast engine; it’s a tool that provides the benefits of a more dynamic supply chain. For the business owners and inventory managers out there who have struggled with the consequences of the internet on their bottom line, it’s time to flip the script and use that connectivity to their advantage, and it’s time to do it now.
Connect with Netstock CTO, Barry Kukkuk on LinkedIn here