mated ordering, says Randy Fields, CEO of Salt Lake
City-based Park City Group, which includes the Reposi-Trak inventory management system. If it’s not done properly, with the right data and the right means of evaluating
it, automating the inventory/ordering process can distort
sales data and actually make out-of-stocks snowball.
The problem develops, Fields says, when an out-of-stock
comes across as a loss of sales for a particular item, with
no context. If a store should run out of, say, half-gallons of
2% milk, the only thing that many IMS or POS systems will
register is a drop in sales for that item. When it comes time
to reorder half-gallons of 2%, the lower sales will lead to
a lower demand forecast and a lower order—even though
there may have been demand that just wasn’t being met.
Fields says this problem can become worse with automated replenishment. “What’s the algorithm for doing
the replenishment? Should it be, ‘Sell one, buy one’?”
he says. “What if you’re out of stock? Well, I can tell you
what happens: You tend to keep driving your inventories
to lower and lower levels, increasing your levels of out-of-stocks.” He once took another company’s algorithms for
automatic replenishment and ran them to infinity, which
found “almost all of those auto-replenishment systems
ordered zero,” he says.
Of course, when it comes to the supply chain and inventory, groceries have other complications that don’t exist
for clothing, electronics or other dry goods.
“A priority for grocers is to efficiently move fresh produce that needs to be rapidly allocated and handled to get
it on the truck for delivery through warehouses,” says Eric
Lamphier, senior director of product management for
Atlanta-based Manhattan Associates, a vendor of WMS
and related software. “Systems that offer better connectivity and visibility into incoming goods from the
suppliers to the distribution center play a
direct role in ensuring a long shelf
life, preserving freshness and
color, and establishing appealing
product presentation in-store.”
To make things more complex,
grocers are subject to internal
and external factors that affect sales and demand, includ-
ing seasonal factors, promotions and even the availability
of programs such as food stamps. Software vendors say
the ability of programs to learn from sales patterns over
the long term is critical to successful supply.
“Our software is able to consume contextual data,
which improves forecasting intelligence,” says McDonald
of Symphony RetailAI. “For example, consuming exter-
nal data, such as weather, allows retailers to better pre-
pare for temperature-related sales for hot or cold foods.
Internal data, such as food stamps or promotions, can
help retailers identify increases in grocery sales, which
helps retailers understand how these factors impact sup-
pliers and product availability.”
In addition, inventory management has become more
challenging due to the changing nature of food shopping:
more stores and more specialization.
“For grocers, it’s about the ability to scale efficiently.
The shifting of consumer behaviors to more frequent,
local shopping trips has led to an increased number of
smaller stores, which are still expected to stock a broad
assortment of goods,” says Matthew Butler, industry
strategies director for JDA Software Group., Scottsdale,
Ariz. “This has led to increased levels of intraday ship-
ments, with more each-level picks than case [picks].
Different order processing approaches and speed have
become critical to doing so, and as demand profiles con-
tinue to evolve, an agile WMS capable of responding to
various forms of scale is critical to success.”
Another factor that can complicate matters is direct
store delivery (DSD), which is increasingly in demand as
consumers press for fresher, more local products.
Fields of Park City Group says scan-based trading—
which his company played a pioneering role in developing
in the 1990s—is the best way to handle DSD. Scan-based
trading basically has the supplier retaining ownership of
an item until it is scanned at the point-of-sale. The practice increases transparency and fosters a closer relationship between suppliers and trade customers, which is
especially important with smaller regional suppliers who
may not yet have a firm foothold in the grocery trade.
Weis Markets, a 206-store chain based in Sunbury, Pa.,
recently invested in Reposi Trak software to manage its
inventory to expedite scan-based trading.
But the practice presents certain challenges regarding
inventory. “There’s an interesting problem: How do you
maintain those inventories versus sales of product that
come from your own warehouse or from your wholesaler?” Fields says. The retailer must depend on the vendor’s reports of what it has shipped to the store to maintain an accurate inventory on the store end.
The key to dealing with all these concerns is to balance
connectivity among applications across the supply chain
What’s the algorithm for doing the
[automated] replenishment? Should
it be ‘Sell one, buy one’?” —Randy Fields, Park City Group
Inventory Management Operations & Supply Chain