In a recent column, I argued that a significant amount of variability on the supply side has long been accepted by retailers. There are a variety of aspects to this variability, and the dynamics vary between retail sectors for sure, but the two primary areas of supplier variability are naturally enough on-time delivery and fill rates.
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| I think it is very fair to say that there simply has not been a "reduce supply variability" mindset on the part of the majority of retailers. |
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I'll be back to those two areas in a second, but will also note there is also a lot of variability in other areas as well, in everything from correct price ticketing (more of a "soft goods" thing) to advanced ship notice accuracy - the latter very important to most large and even medium-size retailers.
The key point is that compared with manufacturing, retailers have traditionally lived with a lot more variability on the supply side than manufacturers ever could. When I was working directly with consumer goods companies, if memory serves me right many retailers were requiring that fill rates (measured different ways, but usually at the total cases level) had to be at least 80% of the PO, and shipments were supposed to arrive (or maybe even just be shipped) within as much as a 10-day window - neither exactly tight tolerances.
I compare that to a visit I paid to an Ohio auto parts manufacturer a few years ago. When the Ford Motor Co. inbound truck stopped to pick up the order from that supplier (multiple orders from different vendors were on the same truck), if the parts weren't ready for loading, the truck simply pulled out (at high speed) and headed to the next stop or onto the assembly plant. The supplier that wasn't ready had to find a way to expedite getting the parts to the factory on-time at their own expense. Do that more than a few times and you would simply be replaced.
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Let's just say there hasn't been that type of thinking in the retail supply chain. Rather, retailers have simply put up with a significant amount of supply variability. They order 10,000 items from vendor A, and then find out how many that vendor actually shipped when the ASN is sent. Then if the fill rate is short, the retailer has to redo its store allocations based on what it now hopes is actually arriving (which may or may not be consistent with the ASN).
Some may say that it is simply inevitable that variability will be high given the thousands of vendors a retailer may have, from huge to mom and pops. Others may note that soft goods, with all the variables (style, color, size), present some special challenges, and they are right there to an extent. And no question, retailers have caused much of their own supplier variability by "Bullwhip type" order patterns. Finally, over the years, there has in fact been some tightening in the fill rate and on-time requirements.
However, I also think it is very fair to say that there simply has not been a "reduce supply variability" mindset on the part of the majority of retailers. It has simply been the way it's been for a long time. And most retailers have consoled themselves with the "chargeback" to vendors - fines for missing fill rates or late deliveries or bad ASNs - as a substitute of sorts for reducing variability. The reality is few retailers actually measure variability, even if they do give vendors a grade on things like on-time.
But are things changing? I say Yes, and point to moves this year by a large regional grocery chain, Target, and Walmart to support that thesis. I will discuss those developments right here in the October issue of the Retail Vendor Performance Management bulletin.
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