Leveraging Supply Chain Trading Partner Intelligence

By  David Novak, executive vice president of business development, SPS Commerce
During these tough economic times, consumer packaged goods (CPG) suppliers that continue to survive and thrive will be those that achieve the highest levels of visibility into their supply chains. Some retailers do a decent job of collaborating with their suppliers sharing information that is essential to supply chain efficiency, such as product availability, sales velocity, fill rates, on-time deliveries, etc. For far too long, however, many suppliers have been left to operate in the dark, and struggle to produce accurate demand-forecasts which, for many, is the central nervous system of the company. The critical data they need - informing them about customer interests, retailer sales statistics, product return rates (and reasons)  is often hidden in disparate systems or simply not made available. As a result, suppliers continue to grapple with a number of questions:

How well are our products being received by consumers? How quickly are products selling at each retail location? Are there opportunities to increase production and sell-through rates? Am I in danger of stock-out conditions at the storefront, or equally as dangerous, surplus conditions?

Suppliers truly need better, easier access to the wealth of untapped data that resides across the supply chain. Fortunately, as more retailers, suppliers, etc. worldwide turn to Software-as-a-Service (SaaS) for faster time-to-value, greater efficiency and fundamental economics, they're gaining access to a repository of trading partner "intelligence" that can significantly improve their decision-making and demand-forecasting. This intelligence gives suppliers the power to exceed customer expectations, to control skyrocketing production costs, and even avoid bankruptcy.

Supplier Forecast Accuracy is Critical
Retailers want to grow sales, realize profits and satisfy customers. As a result, their top concern is empty shelves. This means having stores and warehouses sufficiently stocked to meet customer demand, but not so overstocked that excessive capital is tied up in inventory, or that significant season-end markdowns may be necessary. To avoid the latter, retailers have instituted all sorts of techniques to understand the facts and project consumer spend. Many companies have spent excessive budgets on Business Intelligence, Data Mining, & Predictive Modeling technologies along with planograms, syndicated data and other solutions.

All of this data is used in a sophisticated guessing game to produce merchandise and assortment plans. No matter how perfect these plans are, if the supplier fails to get the right product to the right location at the right time, the retailer frequently will find themselves in stock-out or surplus conditions. It is a tough logistical challenge for most retailers to manage many thousands of items at each location. This is where the supplier can add immense value, should the retailer be willing to part with point-of-sale data. Suppliers, with timely access to POS data from their retailer trading partners, can play a vital role in the prevention of these problems. Furthermore, the supplier can also better optimize their inventory, while reducing costs without compromising their ability to fill orders. Generally speaking, many suppliers struggle to get access, especially those in the small-to-medium size market. Even if the data is received, each retailer delivers it in their own distinct format, and integrating and interpreting the data becomes a cumbersome task. As a result, most suppliers throw in the towel and move on to things they can better control.

Others elect to manually key information from disparate sources into Excel spreadsheets to try and make sense of it all. They live in that spreadsheet every day and attempt to predict how much they're going to sell. This is a waste of time and resources. One supplier that I spoke with spent upwards of 75 percent of their time on spreadsheet data entry and only 25 percent interpreting and analyzing the data. As you might expect, there's large margin for data errors in this model, resulting in the supplier can buying too much too soon, with excess inventory that gets routed to discount shops or expires and is terminated. The supplier puts itself into a situation where it didn't have ability to promise to fill because the inside intelligence and forecast was inaccurate. This results in unhappy retail customers and lost sales opportunities.

Better Trading Partner Intelligence = Better Sales
Retail supply chains operate in dynamic environments in which conditions change - often on a daily or hourly basis. Suppliers need their own consumer consumption data to understand how well their products are performing. This is critical for more accurate forecasting and higher sell-through rates. Without consistent access to customer demand figures, they cannot accurately forecast what they need to sell next month or next quarter. Say that I'm a supplier who gets an order from Wal-Mart. While I understand Wal-Mart's demand, I don't know how much Wal-Mart is actually selling of my product to customers. If I could see my sell-through by store, by customer, and by product, I'd have an early warning system into many potential issues (such as stock-outs). This lack of intelligence and visibility into in-store sales by product by customer makes it hard to tell my procurement people exactly what to buy and when. Conversely, having this information and linking it directly to my fulfillment data provides immense opportunity to diagnose my own supply chain bottlenecks.

An Outsourced, SaaS Alternative to Traditional Software
Fortunately, as more suppliers move to a SaaS model for things like Electronic Data Interchange (EDI) applications with retail customers, they're discovering an important side benefit: the same SaaS providers that are working with tens of thousands of different manufacturers, retailers, 3PLs, sourcing companies, firms, carriers and brokers already have a fast, accurate means of collecting and synchronizing data among all the various trading partners. Since SaaS providers have extensive experience accessing and integrating data from multiple trading partners and multiple IT systems, suppliers - for the first time - can have complete visibility into customer behavior, and supply chain managers can have insight into business efficiencies. Instead of waiting for IT staff to get around to collecting and analyzing various bits of supply chain data, suppliers can simply pick up the phone and make a request for information from their SaaS partner. This means having actionable intelligence about customer behavior patterns at their fingertips, as well as all of the processes involved in the supply chain, from raw goods to final sale.

This data feeds the suppliers' demand forecast. It enables them to predict the quantity of goods they need to order, improve lead time for producing goods, and carry less inventory in-house. Having confidence in forecasts can potentially lead suppliers to negotiate better prices from their partners. Retail customers appreciate this as well, since it enables their suppliers to better serve their needs in the long run. This results in fewer out-of-stocks, higher sales, and let's face it - happier consumers.

The SaaS model also adds value across suppliers via aggregated benchmarks, best practices, and behavior analysis that is impossible to glean with traditional, on-premise software. While SaaS vendors are of course required to maintain the confidentiality of each client's data, they do have an impressive wealth of industry data that is useful for revealing trends that would otherwise remain unseen. In this way, suppliers gain a wealth of knowledge with little capital investment.

CPG suppliers continue to outsource more functions to third parties around the globe across their entire supply chains (logistics, warehousing, fulfillment, sourcing, manufacturing, transportation, etc). As a result, visibility & intelligence into supply chain activities has become exponentially more complex and more important. Supply chain intelligence, delivered in a SaaS model, offers all members of the retail supply chain ecosystem insight into their supply chain operations by aggregating and analyzing data from multiple sources - including internal operations, retail customers, 3PLs, sourcing companies, QA firms, carriers, brokers and other trading partners. This unprecedented visibility is transforming the way suppliers interact with their retail customers and trading partners. While this can be done with traditional software models, SaaS offerings deliver unmatched time-to-value metrics mixed with industry best practices and delivered in a "business service" model that is difficult to match in software "build-it-yourself" approach. For the first time, all suppliers have a real chance to use information from their trading partner ecosystem to drive supply chain efficiencies that are usually reserved for the largest organizations.

You can reach David Novak and learn more about trading partner intelligence by contacting SPS Commerce.