Retailers and Suppliers Unite! How Pervasive Collaboration Will Fuel the Demand Driven Supply Network Scott Langdoc – Retail Kara Romanow – Consumer Products

Retailers and Suppliers Unite!

How Pervasive Collaboration Will Fuel the Demand Driven Supply Network

Retailers and Suppliers Unite!

How Pervasive Collaboration Will Fuel the Demand Driven Supply Network

Scott Langdoc – RetailKara Romanow – Consumer Products

February 2005

Let’s Cover…Let’s Cover…

• CPG and Retail Industry Challenges

• Working toward a Demand-Driven Supply Network

• Necessary Components of 21st Century Collaboration

• Next Steps - Critical Focus Areas

CPG and Retail Industry Trends &IT Spending MetricsCPG and Retail Industry Trends &IT Spending Metrics

CPG ChallengesCPG Challenges

Profitable growth requires strategiesthat center on being demand-driven

Eroding

Market ShareProduct

Proliferation

Compliance Increased Costs

Retail Industry SnapshotRetail Industry Snapshot

Retailer Revenue and Market Share Growth Requires New Thinking In A Difficult Environment

Global Retailer

Dominance

Retail Segments and Channels

Continue to Blur

Online Retail is Absolutely Real

Changing

Consumer

Psychology

AMR Retail IT Spending Profile 2004-2005AMR Retail IT Spending Profile 2004-2005

CPG IT Spending 2004-2005CPG IT Spending 2004-2005

DDSN in ContextDDSN in Context

What’s wrong with today’s supply chain?What’s wrong with today’s supply chain?

The continuingtravesty

of out-of-Stocks

Orders:

~20% filledimperfectly

Inventory:

$1.2 trillion fillingthe chain today

Markdowns:

Involved in 78%Of merchandise

sold

New Products:

50% Fail

Engineering:

70% of hourswasted

Benchmarking results find leaders:Benchmarking results find leaders:

Deliver 20% More Perfect Orders…

68%

90%

Laggards

Leaders

…Hold a third less inventory…

Laggards

Leaders

72 Days

54 Days

…and have lower costs equal to 5% of revenue

26%

21%

Laggards

Leaders

Demand Driven Supply Network (DDSN)Demand Driven Supply Network (DDSN)

• A system of technologies & processes that senses & reacts to real-time demand signals across a supply network of customers, suppliers, & employees

• Start with the “Moment of Truth”….. …..and work backwards.

ConsumerDemandCreation

Retail’s Role in the DDSNRetail’s Role in the DDSN

Demand DrivenSupply Network

Demand Forecasting

StoreExecution &ConsumerExperience

Analyze

Plan

Merchandise& Market

Product Availability

Integrated Promotions

Product & Price

Planning

The DDSN Top 25 – Why????The DDSN Top 25 – Why????

• Global Inventory Visibility• “Responsive Sourcing”• Network Management

• Capacity planning• Event modeling• Predictive analytics

• Demand Intelligence• Promotional Forecasting• External Influence Data• Store/SKU scalability

• Why is Dell so good?

AMR’s DDSN Top 25AMR’s DDSN Top 25

60% of top 25Are CPG or Retail!

Moving Toward 21st Century CollaborationMoving Toward 21st Century Collaboration

•Consumer Insight & Demand Intelligence

•Data Sync Done Right

•The Reality of RFID

•Next Generation Promotion Planning

Discussion Topics





Consumer Insight: The Holy GrailConsumer Insight: The Holy Grail

• Demand is the lever

Correct

DiagnoseAP AR

Inventory Total

Cash-to-Cash

AssessPerfect Order

SCM Cost

Demand Forecast

Supplier Quality

Supplier On-Time

Purchase Costs

Dir Mtl Costs

RM Inv

Cost Detail

Production Schedule Variance

Plant Utilization

WIP + FG Inventory

Order Cycle Time

Perfect Order Detail

Correct

Substantial data for business caseSubstantial data for business case

DemandVisibility

Perfect Order

100%

90%

80%

70%

60%

50%

40%

40% 50% 60% 70% 80% 90% 100%

Source: AMR Benchmark Analytix

Demand in Retail Supply ChainDemand in Retail Supply Chain

• Gathering Demand Signals• Syndicated data• Raw POS data• VMI/CPFR transactional data• Loyalty Data• ePC data

• Managing that data: Demand Signal Repository (DSR)• Central coordination, cleansing, normalization• Database + Analytics + Integration

• Turning into Action

Internal data sources

Retailer 1

Retailer 2

Retailer 3

Retailer 4

EDW

BIMarketin

g

Supply

Chain

NPD&

Launch

Data mart

Data mart

Data mart

BI

BI

BI





The Basics: GDSN VisionThe Basics: GDSN Vision

Retailer

DirectData Pools

UCCnetWWRE

TransoraCountry DP

Etc.

Manufacturer

GS1Registry

GDSN Goal: One connection to the worldGDSN Goal: One connection to the world

UC

Cn

et

EA

N Y

Tra

nso

ra

WW

RE

EC

CC

HomeData Pool

Data Sync: Where are we now?Data Sync: Where are we now?

• Adoption isn’t much different from last year• A few more retailers “get it”

• Remember the buzz?• Save the industry millions

• Cap Gemini Ernst & Young• Benefits equal 1-3% of supply chain costs

• A.T. Kearney • Inefficiencies cost $40b industry-wide• Benefits equal $700k-$1.2m for every $1b in sales

• Price/promo will magnify impact

Supplier Short cut: Retailer Compliance onlySupplier Short cut: Retailer Compliance only

Data Sync is Critical and FoundationalData Sync is Critical and Foundational

• Building block for future technology• Garbage in, Garbage out

• Ex: with RFID it’s just Garbage out FASTER

• Trading partners must have clean, synchronized data, and must trust the source

• “It’s just the right thing to do…”





RFID: Management By Magazine…RFID: Management By Magazine…

A Radio Chip in Every Consumer Product

The ComingRetail Transformation

Cheap Chips EverywhereSeen Driving Next Tech Wave

Tiny Chips May RevolutionizeAll Areas of Supply Chain

Management

RFID: A Retail Revolution?

RFID Reality: Market EvolutionRFID Reality: Market Evolution

The MandatesThe Mandates

RFID InitiativeStatus CheckRFID InitiativeStatus Check

Unfair?Unfair?

Wal-Mart: January RFID Report CardWal-Mart: January RFID Report Card

• 65% of product tagged from first 137…• Although only a handful of SKUs for most major suppliers

• Read Rates• Single Cases through to sales floor: 99%+• Single cases on conveyor: 95%+• Cases on loaded pallet: 66%

• RFID data to RetailLink in 30 minutes• All suppliers have agreements in place for roll-outs• Wal-Mart is targeting initial ROI around store

inventory• Associates alerted to existing back room stock when placing

orders

• Our Call?• Still R&D….targeted ROI opportunities• Many, many, many technology challenges remain• Suppliers will struggle to find any ROI

WMT: Supplier RFID spendingWMT: Supplier RFID spending

• AMR originally estimated $13-23M for CP suppliers• $5M to $10M for tags and readers • $3M to $5M for system integration • $3M to $5M for changes to existing supply chain

applications • $2M to $3M for storage and analytics of ePC data

• Suppliers have only spent $1-3M so far

• WHY?• Compliance ONLY• “Slap & ship” - not integrated, not strategic• Buying time…

Compliance Benefit

Suppliers: No value in mere complianceSuppliers: No value in mere compliance

$$$

Time

Compliance Cost

Beyond Compliance Benefit

Beyond Compliance Cost

Retailers: There is ROI Potential for RFIDRetailers: There is ROI Potential for RFID

Case / Pallet TaggingCase / Pallet Tagging

•DC Labor ImprovementsDC Labor Improvements

•Back Door ReceivingBack Door Receiving

•Reduced Invoice Reduced Invoice DeductionsDeductions

•Back Room VisibilityBack Room Visibility

•Inventory VisibilityInventory Visibility--Supplier--Supplier--DC--DC--Store--Store

Item Level TaggingItem Level Tagging

•Shrink ManagementShrink Management

•Counterfeit ProtectionCounterfeit Protection

•TraceabilityTraceability

•Returns ManagementReturns Management

•Inventory VisibilityInventory Visibility--Back Room--Back Room--Shelf--Shelf

Supply ChainSupply ChainExecutionExecution

ProductProductPlanningPlanning

SupplierSupplier

InventoryInventoryPlanningPlanning

ReplenishmentReplenishment

RetailerRetailer

RFID Holy Grail for All: Transforming Supply Chain VisibilityRFID Holy Grail for All: Transforming Supply Chain Visibility

Factory FloorFactory Floor

Factory DockFactory Dock

Supplier DCSupplier DC

Retailer DCRetailer DC

Store Receiving DoorStore Receiving Door

Back RoomBack Room

Sales Floor / POSSales Floor / POS

SupplierSupplier

RetailerRetailer

TransportationTransportation

TransportationTransportation

Real-TimeSupply Chain

VisibilityData

Outstanding ChallengesOutstanding Challenges

• Cost model doesn’t work for low-value products• How do suppliers get ROI?

• Technology still maturing• Most consider investments to date throw-away

• Wal-Mart roll-out• June 2005: 6 new DCs + 250 stores and Sam's Clubs• October 2005: up to 13 distribution centers and 600

stores

• Rest of Wal-Mart supplier base• Retail fast followers• Data synchronization = pre-requisite

Execution of Pilot is Key to SuccessExecution of Pilot is Key to Success

1. Define RFID Pilot Scope 2. Define RFID Pilot Objectives & Timeline 3. Define Core Internal RFID Team 4. Define RFID Project Success Metrics 5. Create Supplier Collaboration Plan 6. Identify RFID Technology Partners 7. Create lab environment with proposed RFID

process design 8. RFID Project start & iterative assessment 9. RFID Roll-out Decision point

It’s a Marathon – not a SprintIt’s a Marathon – not a Sprint





CPG Goals for Promotions: DefinitionCPG Goals for Promotions: Definition

• Measurement of the results of a promotional activity based upon lift, cost, profit, revenue, and account management considerations.

• More than TPM – not just execution• Performance management, decision support

SalesDid the promotion improve my relationship with the account?

Account Management

MarketingDid the promotional spend increase market awareness and change buying patterns?

Market Awareness

Operations

Marketing

Did the promotion increase volume and was I able to predict that volume correctly?

Promotion Lift Analysis

MarketingHow do I most effectively spend marketing funds on promotions?

Promotion Spend Effectiveness

Organizational Involvement

Key Question to Be AnsweredGoals

SalesDid the promotion improve my relationship with the account?

Account Management

MarketingDid the promotional spend increase market awareness and change buying patterns?

Market Awareness

Operations

Marketing

Did the promotion increase volume and was I able to predict that volume correctly?

Promotion Lift Analysis

MarketingHow do I most effectively spend marketing funds on promotions?

Promotion Spend Effectiveness

Organizational Involvement

Key Question to Be AnsweredGoals

What’s Changed?What’s Changed?

Strategic• Performance

management• Analytics and

decision support• Effective

collaboration

PromotionEffectiveness

Transactional• Focused on AR• Adversarial

relationship with retailers

TPM

Transition• Co-location with

retailers• Introduction of

S&OP• Organizational

confusion

CollaborationFrenzy

Expansion of the role of what can be achieved through promotions

Lack of direction -departments going in different directions

Promotions viewed as economic transactions

Results:

1990s 2005 - 2008Early 2000s

Metrics that MatterMetrics that MatterMetric Definition Purpose

Shelf performance

The percentage of time that the product is on the shelf in the correct location during a promotion

Measure the last hundred feet of promotion effectiveness. It is not enough to get the product to the store. It has to make it to the shelf.

Promotion profitability

The actual profitability of a promotion based on the entire promotion lifecycle including trade funds allocation, product manufacturing costs, delivery costs, and merchandsingin costs

As the volume of special promotions continues to rise, it is very important that the full profitability of promotions is measured. A promotion that performs from an uplift perspective may actually be very unprofitable from a deoivery perspective. Uplift cannot be viewed in a vacuum.

This is the most straight-forward measurement, and the easiest to capture. The time period is important to understand the immediate effect of a promotion versus the entire impact of an advertising strategy

Profitability by product line

How much profit is generated by each product line.

The revenue divided by the cost of the promotional spend is the first step towards tracking profitability. Over time, this will include the cost of goods sold, freights costs, and other elements to understand true profitability

Revenue by product line

How much revenue is generated by each product.

The combination of promotion and advertising strategies should combine to increase revenue for a product line

Store/account volume

The amount of product purchased by each retailer

The final uplift is important, but it is also important to determine what is moving through the accounts and stores. If this movement does not match POS data, it is clear that product is stacking up in the stores

Revenue per scan (scan-down)

The number of products that were scanned during the promotion.

Retailers are pushing for scan-based payment. For the time being, this is only being carried out for promotions. The ability to track this drastically reduces the complexity of the claims process.

Promotional uplift based on a time period

How much more product is being sold based on a particular promotion.

Retail Price and Promotion ChallengesRetail Price and Promotion Challenges

LimitedIntelligence &

Analytics

LimitedIntelligence &

Analytics

LongPromo

Planning Lead Times

LongPromo

Planning Lead Times

Pricing Promotions StoreExecution

VaguePricing

Strategies

VaguePricing

Strategies

DisconnectedStore PricingEnforcement

DisconnectedStore PricingEnforcement

DesperateItem and

Category Data

DesperateItem and

Category Data

Technology Architecture

VendorTrade FundObsession

VendorTrade FundObsession

Retail Lifecycle Price ManagementCritical ComponentsRetail Lifecycle Price ManagementCritical Components

Price and PromoManagement,

Optimization andExecution

Atomic LevelDemandModeling

MultipleRetail Segment

Support

Access toExternal

Influence Data

Promotion Optimization in RLPMPromotion Optimization in RLPM

Key Key ObjectivesObjectives

Category DataCategory Data

POS DataPOS Data

Evaluate promotional items based onEvaluate promotional items based onTheir impact on the TOTAL basket andTheir impact on the TOTAL basket and

The total categoryThe total category

Detailed Store/SKU analytics combiningDetailed Store/SKU analytics combiningRegular and promotion pricingRegular and promotion pricing

Assessing cannibalism and affinityAssessing cannibalism and affinityImpacts at the promotional item-levelImpacts at the promotional item-level

SKU-level demand forecast forSKU-level demand forecast forBoth regular and promotional itemsBoth regular and promotional items

ExternalExternalDemand DataDemand Data

Retail Promotions are a Lifecycle ProcessRetail Promotions are a Lifecycle ProcessRLPM Logical Model

Competitive InsightRetailer “Image”Supplier Offers

Demand Intelligence Engine

InitialPrice

Clearance &Markdown

Promotion

SalesHistory

Price Management Engine

PricingRules Engine

PriceMaintenance

MerchandiseData

PromoExecution

PriceExecution

RLPMWorkflowMgmt

ProactiveExceptionAlerts

MerchandiseHierarchyMgmt

Promotions &Vendor Mgmt

Reporting

“What If”Forecast Analytics

MerchantWorkbench

De

ma

nd

-Dri

ve

nP

ric

e O

pti

miz

ati

on

Ru

les

-ba

se

dP

ric

e M

an

ag

em

en

t

Important RLPM BenefitsImportant RLPM Benefits

• Elimination of existing pricing conflicts

• Shorter promotion scheduling windows

• More effective vendor negotiations

• Improved price integrity at store level

• Bigger market baskets from optimized ad item selection

• Broader visibility and accountability on various levels of category activity

PlanningPlanning

Strategy & RulesStrategy & Rules

ExecutionExecution

OptimizationOptimization

ManagementManagement

Suppliers are moving toward demand-driven promotion optimization….Suppliers are moving toward demand-driven promotion optimization….

• Part of the internal promotional offer development process

• Leverages multiple demand signal sources• Internal Sales Data• Externally supplied data• Retailer-supplied data

• Multiple benefits• Better offers to retailers• Better advanced planning

for product manufacturing

• Tools are now emerging, partnerships are being established

Supply Chain Execution SystemsSupply Chain Execution Systems

Promotional PlansPromotional PlansSales DataSales Data

Promo Demand ForecastPromo Demand ForecastOptimized PromotionOptimized PromotionCalendar PlanningCalendar PlanningBaselines and Incremental VolumesBaselines and Incremental Volumes

Forecast feedForecast feedTo supply chainTo supply chain

TFMTFMSystemSystem

Consumer Products CompanyConsumer Products Company

OptimizationOptimizationEngineEngine

DemandDemandDataData

Promo Drives the Retail Collaboration FrameworkPromo Drives the Retail Collaboration Framework

•Category PlanningCategory Planning•Deal ManagementDeal Management•Promo EffectivenessPromo Effectiveness•Demand AnalyticsDemand Analytics

Retailer Home OfficeRetailer Home Office

StoreStore

Supplier(s)Supplier(s)

TFMTFMSystemSystem

StrategyStrategy

PricePrice

PromoPromo

ExecutionExecution

UCCnetUCCnetGlobalGlobal

RegistryRegistry

Scan DataScan DataPanel DataPanel DataCategory DataCategory Data

ExternalExternalDemandDemand

DataData

ItemItem

DemandDemand

POS SalesPOS Sales

CustomersCustomers

EmployeesEmployees

ItemItem

DemandDemand

DataDataSyncSyncProcessProcess

PDM ProcessPDM Process

PricingPricing

CD

M M

od

el

CD

M M

od

el

Achieving 21st Century Collaboration

What We Recommend…

Next StepsNext Steps

Critical Priorities for Enabling 21st Century Collaboration and a DDSNCritical Priorities for Enabling 21st Century Collaboration and a DDSN

Consumer Insight &Demand Intelligence

Suppliers Retailers

DataSynchronization

RFID

Promotions

• Gather all demand signals• Assess current and future use • Move from analytics to action

•Need to link to store execution•External influence data is key•Share, share, share with suppliers

• Don’t wait for a mandate• Cleanse your data!!!! • Look beyond compliance for other

ways to leverage central data mgmt.

•Orchestrate data centralization•Data Quality is key!•Think long-term to price and promo

• Understand current and future ROI• Implement where it makes sense• Don’t drink the cool-aid

• Crawl, walk, run• Measure the right metrics• Take an inter-departmental approach

•Emphasize supplier partnerships•Focus on targeted benefits•Stick to standards

•Strategic calendaring is critical•Deal management with your demand!•Link to pricing and execution

Thank You!

[email protected]

[email protected]

(617) 542-6600

Thank You!

[email protected]

[email protected]

(617) 542-6600

Documents

Retailers and Suppliers Unite! How Pervasive Collaboration Will Fuel the Demand Driven Supply Network Scott Langdoc – Retail Kara Romanow – Consumer Products