Optimizing Supply and Demand

"OPTIMIZING SUPPLY AND DEMAND"

When orchestrating the flow of goods on a global level, two key inventory issues are supply management and demand execution, according to John Dalton, CEO of ScanData Systems. ScanData specializes in those key areas, with a focus on small-parcel direct-to-consumer fulfillment for catalogers, manufacturers, and brick-and-mortar retailers. "Supply management typically happens in the supply chain prior to entering the distribution system," explained Mr. Dalton. "The ability to predict demand and procurement of supply effectively and to manage shortest lead times is essential in today's direct-to-consumer business.

"After supply procurement, the second issue is demand execution. The ideal scenario would be to cross-dock all inventory through the DC [distribution center], but in the real world, you have to build up reserved supply to handle high demand points and windows of opportunity.

"When you break the supply chain into pieces, the first part is eliminating or reducing the time elapsed between inventory procurement and receipt at the DC, and the second part is to pull supply to match projected demand requirements. Base goods are fairly predictable, but the real trick is projecting new products and specific-location high demand."

One of ScanData's manufacturer customers (who prefers to remain anonymous) has taken over direct fulfillment of its retailer customer's Web and catalog orders for select high-volume items. "We're installing order consolidation/ small-parcel processing applications at manufacturing points, completely circumventing traditional retail/ catalog distribution," noted Mr. Dalton. "The package will still appear to come from the retailer/ cataloger/ Web merchant, but fulfillment costs will be lower and transit time to the consumer will be shorter. This trend, where the manufacturer fulfills and ships directly to the consumer using retailer packaging inserts and materials, is already widespread in electronics.

"The ultimate efficiency is to move fulfillment to a direct-to-consumer scenario via the manufacturer. The merchant provides demand, and the manufacturer provides supply-to-demand execution. This trend is growing among progressive Web retailers and catalogers. Even if only 5 percent of fulfillment goes direct, it will [mean] an immense cost savings impact for the retailer and a huge opportunity for capable manufacturers." Currently, added Mr. Dalton, brick-and-mortar retailers and manufacturers are overlooking opportunities made possible by their superior infrastructures and strategic placement of existing distribution sites.

These companies may conclude that the Web is not relevant to their businesses or that it adds too many complexities to their infrastructures. The Web, noted Mr. Dalton, provides two great opportunities for traditional merchants and manufacturers: the opportunity to move their current merchandising product and customer service to every desktop worldwide and to provide online order entry to those same desktops.

"The only missing ingredient is the ability to execute those orders within their existing infrastructure," he observed. "The deployment of new technologies and techniques applied to existing infrastructure provides the most effective ROI [return on investment] opportunity."

Mr. Dalton sees brick-and-mortar retailers that establish a Web presence as destined to be more successful in the long run than their pure dot.com counterparts, based on their stronger merchandising and distribution expertise. "A Website is just another opportunity for a traditional retailer to sell merchandise and increase inventory turns, leveraging [its] experience and current infrastructure," he said.

He cited Eckerd Drugs as a recent example of a brick-and-mortar chain store retailer that has successfully launched an e-tailing arm: "[Eckerd's] challenge was adapting existing distribution infrastructure, which was set up to fulfill by store, to handle individual parcel order demand." This is the classic Web dilemma for established retailers. But Mr. Dalton said that the Web, when leveraged correctly, is just an extension of a retailer's existing storefront, providing more services and convenience to an already strong position.

ScanData solved Eckerd's problem by consolidating the company's Web-site orders into "store" batches and inserting them into existing warehouse systems. The Web orders go through the normal picking function. The Web "store" batch is then simultaneously deconsolidated into individual orders, which are scanned, verified, packed, invoiced, and labeled, then sorted and manifested for outbound shipment.

"People with a brick-and-mortar presence are extending their store-front service base to the Web by providing home delivery," observed Mr. Dalton.

"The dot.com competition has enhanced brick-and-mortar retailers' services. As the dot.com eclipse of the sun passes, the brick-and-mortars will shine even more brightly."

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