5 Strategies for Leveraging Your Supply Chain

Winning retailers can command even better financial results by leveraging one of the most critical bloodlines of their operations - the supply chain - to capitalize on shifting consumer-spending behaviors and cost volatility to strategically improve their market responsiveness and profitability.

The escalating impact of the supply chain on overall business success underscores the critical need for data-driven decision making that links the supply chain to corporate and financial goals.

Outlined below are effective strategies companies can adopt to leverage consumer and market demand data for improved market positioning according to David Johnston, JDA Software's senior vice president.

1. Increase cash now! Companies need cash in order to ensure the security of their business and fund critical initiatives - and they need it now. With the credit market in turmoil, the more cash that can be sustained the better positioned a business will be to weather the volatility. The winning companies are those that have enough cash to continue to fund their priority initiatives and place focus on providing the products that consumers now want. Companies should be taking a close look at rationalizing their working capital in order to quickly align their inventories and, in turn, convert it to cash. One of the most effective and quickest ways to increase cash is through strategically adjusting the levels of inventory in the whole supply chain network - examining how much is currently being invested in inventory and determining if the allocation is aligned with consumer demand.

Traditionally, inventory policies are set six to 12 months in advance and are based on a simplistic 'days-of-supply' methodology. This approach does not take a holistic view of all inventory points in the supply chain and ignores the individual variability associated with each SKU. With demand patterns shifting dramatically as consumers' preferences change, comprehensive optimization methods that can evaluate inventory in the entire logistics network become a necessity. Operating with optimized inventory levels can generate substantial working-capital savings - thus delivering cash back to the business.

2. Promote brand strengths. The volatility of the economic climate is transforming the way consumers spend money. Consumers are in search of greater values, and place a premium on value versus brand. These shifting consumer-buying behaviors, combined with intense competition and increased retail pressures, require changes to the way consumer product manufacturers manage their demand. The winning companies must be able to create demand by offering new products that provide differentiated value from the competition. This is a vital strategy to growing market share and revenue, and protecting existing sales - and cannot be sacrificed despite other pressures in the market. To effectively provide a broader range of value-based products, efficient promotion and category planning are essential to success. Goods must be available on the shelf, promotions must be more attractive than other brands and superior customer service experience must be maintained.

3. Sense and respond to changing market conditions. Companies can successfully take their supply chains to the next level by being able to respond to the changes in market conditions on a daily basis and in a profitable manner, providing instant visibility and alerts when changes were feasible or violating certain constraints in the supply chain. Having daily insight into demand - rather than weekly or monthly - minimizes the delay in responding to changes in the market. For example; if a promotion is performing as expected, or conversely, is highly effective, changes can quickly be made to the production of inventory. Or, if the current trends of a value-based product line show a significant increase in demand, then production and inventory plans can be adjusted to maximize the use of all assets and deliver more profit.

4. Gain a sharper understanding of consumer demand. Another key to sustainable success is to develop a sound demand plan based on relevant market drivers that influence consumer-buying behaviors. Not only is it important to understand how much of a product is needed, but also the objectives behind the demand plan so companies can understand the true trend or seasonality of the product.

Managing demand must include the ability to better predict the effects of promotions and events to get a total picture of demand beyond a pure statistical view of baseline business. Companies need to improve their ability to sense demand on a daily basis - rather than a traditional weekly or monthly basis - utilizing a combination of additional intelligence such as a daily order history for each customer, as well as integrated consumption and shipment data to produce a more responsive short-term daily demand.

5. Establish a VMI relationship. Another proven strategy is to extend the visibility of demand from the distribution centers to the customers by integrating vendor-managed inventory (VMI) programs into the core supply chain planning process. Having the visibility of the customers' inventory and demand patterns will not only improve the accuracy of the demand plan, but also offer opportunities to improve inventory positions and replenishment policies to free-up cash from potentially tied-up working capital.

Companies that take advantage of the aforementioned short- and long-term strategies will tremendously improve their sustainability to weather today's volatile economic challenges and will be better positioned than their competition when the market rebounds.