Monday, November 17, 2014

Did you know a typical e-commerce business spends approximately 20 to 30 percent of their budget on overhead, 40 percent on marketing, and 20 to 30 percent on inventory?
There are several optimizations available for first two, but very little or no solution for the third! Wal-Mart has extensive techniques to understand when to reorder merchandise and in what quantities. [1]

Despite these techniques, anomalies like the Oprah factor [2] can be planned for. The Oprah factor refers to when demands usually spike and then curtail off. The upward shift in demand is needed to sell more products but after the anomaly ends demand usually come down to the previous level. Companies such as Indigo, Amazon, Borders, Barnes and Noble predict demand using time-series analysis.
A new technique is becoming more popular: Flowcasting! It is a “sensing of demand” from the store level upwards. This gives real-time inventory analysis to the suppliers so that inventory can be replaced in-time.
Flowcasting differs from traditional DRP(Distribution Resource Planning) in three ways:
  1. ·         It is based on actual store level demand
  2. ·         It is scalable to handle the large flow-back volume from the store level
  3. ·         It is integrated into Red Prairie supply chain executions systems

Companies shouldn't rely on only one supplier. Mr Ed Starr, partner in Accenture's supply chain management practice advocates an approach to supply chain operations whereby “not all eggs are kept in one basket” [3]. "In business, hedging is the best long-term result," he says. He said that companies should react fast to demand and their business. Zara, the Spanish fashion chain, brought some of its manufacturing back in-house even though it costs more now, as that reduced lead times.

Yossi Sheffi, professor and head of MIT's Center for Transportation Studies also reinforces this thought. He says that “lean production techniques are not necessarily incompatible with building security into the supply chain”. Example: In Europe, Hewlett-Packard needs to produce printers for markets, each with its own language, different instructions and power supply. Thus, they redesigned their products in a way that it manufactures standardized printers and sends to a centralized distribution center where the appropriate language and power cords are fitted.

This video explains how FedEx does it! 

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