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Retail''s IT hooknews
06 May 2006

Faced with poor supply chain management and a rapidly changing competitive environment, retailers will look for IT-enabled consumer driven replenishment to simplify supply chain operations. By Jangoo Dalal, Sr VP, enterprise, Cisco Systems India & SAARC.

Jangoo DalalIt''s New Year''s Eve and amidst my hectic business activities, I had to ensure that my New Year shopping is completed in time. Impressed with the discounts offered in the newly opened mall in my neighborhood, I decided to shop there. However, some products on my wish list were out of stock — a common enough phenomenon that plagues most consumers across the country today.

Out-of-stocks are the most noticeable problem for consumers — during normal shopping experiences eight per cent of intended purchases are not on the shelf and when it comes to promotional offers, these out-of-stocks rise to 15 per cent. Faced with an empty shelf, consumers often do not substitute the same brand. They simply keep their money and leave the store in search of another product. Let''s take the example of a $25-billion retailer: lost sales due to out-of-stocks added up to nearly 1 per cent of total sales — a mind-boggling figure of $1 billion!

Retailers across the nation are unable to predict and master the demand-supply gap as a result of orthodox tools to measure changing consumer behaviour. Considering the Indian retail industry grew by 300 per cent in the last 12 months and supply chain accounts for 50 per cent of costs, retailers are now looking at ways to enhance the supply chain and predict consumer-buying habits. (source: AT Kearney)

High consumption patterns driven by disposable incomes, lifestyle shifts and availability of a wide range of brands are dictating the high-growth of different retail formats in India. No wonder, Indian retail players are under tremendous pressure to make the supply chain more efficient in order to deliver quality, selection and service to consumers. Retailers are now looking at creating an efficient supply-chain via a concept popularly referred to as consumer driven replenishment. What this implies is placing the consumer in the centre of the replenishment process, to allow retailers to be able to use real-time data to sense and respond to changing consumer demands.

To implement consumer driven replenishment, one needs to first collect and analyse pre-shopping signals, which often go unnoticed today. For example, consumers may speak to store associates or call centre agents to enquire on a particular product. As this often leads consumers to purchase products, retailers and supply chain partners can use existing consumer touch points to map consumers'' buying preferences. For example, Spanish retailer Zara furnishes its store employees with PDAs to help them order out-of-stock items the minute the customer brings it to the assistant''s attention. This information captured via the PDAs dictates next-day replenishments at the stores.

In another instance, WalMart leverages weather data for replenishment. When the world''s largest retailer knows about an approaching hurricane or snowstorm, the stores in that area are doubly stocked up with essential items such as bottled water and batteries. This data helps Wal-Mart align inventory with increased demand to cover unnatural events and prevent out-of-stock situations.

Consumer driven replenishment will change the way the industry handles forecasting and replenishment. The major business change will start at the business process level; to respond quickly to consumer demand, retailers and their supply chain partners must redesign the current business process. All supply chain partners will become part of a cohesive architecture, enabling information to flow freely from retail functions to suppliers.

Inevitably, consumer driven replenishment within the Indian retail sector will be reflected in rapid growth in sales of supermarkets, department stores and hypermarkets. And with this increased competition, retailers will look at various opportunities to maximize customer satisfaction. These will include initiatives to streamline internal back end costs so as to translate savings onto customers, maximising mind share in a cluttered market and delivering the best in store experience. Keeping these deliverables in mind, some of the other key modules that the store of the future will look to implement will include:

Store connectivity: Stores will invest in building wide-area networks (WANs) and virtual private networks (VPNs) to access information across various sites. With visibility into every resource, stores will take advantage of up-to-the-minute data at the right time for increased strategic flexibility and informed decision-making for managing inventory.

RFID: Widely regarded as the key defining technology to hit the retail sector, RFID tags on each piece of merchandise will enable companies to monitor their inventory at a more detailed level than ever before. Executives will identify when problems occur by monitoring signal readers installed at key junctures, such as loading docks, receiving points, distribution centres, backrooms and store shelves. These readers in turn will be networked to a centralised monitoring system that would give companies information they could never imagine with current operations, allowing them to identify problems as shop lifting, inventory management, and even ''gray market''sales that can erode profits and damage distribution relationships.

Store Mobility: Stores will use wireless technologies at the point of sale for faster checkout and real-time product information in the store to improve operations, and throughout the supply chain to reduce costs.

IP Communications: Stores will converge their data and voice systems, providing instant communication throughout stores at significantly reduced costs.

In conclusion, suffice to say that faced with poor supply chain management and a rapidly changing environment, today''s retailers will most definitively look for consumer driven replenishment to simplify supply chain operations, control costs, and measure results. With networks that will enable real time updates to predict and replenish stocks, the Indian consumer will hopefully never find his shopping preferences out of stock.

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