I’ve been researching the ROI associated with consumer goods (CG) companies using downstream data (e.g., POS, store level inventories, and DC-to-store shipments). As part of this research, I recently spoke with a supply chain director at a very large CG company who asked, “Why can’t my supply chain team think like my category managers?”
A little background will help you understand his lament. Large CG manufacturers generally have account teams located in Bentonville, Arkansas, the headquarters of Walmart, to facilitate collaboration. They also tend to have teams at the headquarters of other important retail customers like Target. This CG manufacturer has a “customer supply chain team” located in Bentonville that reports to the supply chain organization, but also reports via dotted line to sales.
In many ways, this CG company is ahead of the curve. It has been using downstream data for forecasting at the store level (not individual stores, but logical groupings of stores) for more than five years.
The supply chain team in Bentonville serves a variety of purposes. It meets with the Walmart replenishment team on a weekly basis. Adjustments to Walmart’s store level inventory systems will cause changes to how much and how often the CG company’s products are ordered. The CG company’s team will look at Walmart’s forecasts and compare them to their own, and at times suggest to Walmart that it needs to make “the following setting changes” in its system “for these reasons.”
By understanding these settings, combined with the downstream data it has, the CG company is able anticipate what the stores are likely to forecast in the coming weeks. But the company would be better at this if its supply chain team could think more like their category managers. The company’s category managers use the Walmart data more robustly than its supply chain people. The supply chain team tends to think its job is done “when the truck leaves their DC.”
If the supply chain team could understand shelf design, the length of store aisles, and the layout of the stores, it could do a better job of mimicking store-level ordering. There are times when POS sales do not drive future orders. For example, this company has seasonal products and the stores have to engage in seasonal pre-builds. Category thinkers, who understand the stores, can visualize this, and how it will impact store level ordering, in a way many customer supply chain teams cannot.
We used to advise people interested in a Supply Chain Management career to also take finance courses. This is still good advice. But now, perhaps, we also need to teach young professionals to be “category thinkers” so they can begin their careers in scenic northwest Arkansas.
(Note: Logistics Viewpoints is going on haitus the next two days while we’re in Orlando for our Performance-based Outsourcing Seminar. We’ll be back on Friday with some quick insights from the seminar, as well as our weekly news roundup).
Great article! Before I became a commodity and then category manager I worked in manufacturing for six years. Due to this experience, I can manage vendors, forecasting, inventory, etc. much better than my co-workers who do not have this experience. This knowledge allows me to be proactive rather than reactive and to bypass the many pitfalls in a supply chain. Also, since I designed packaging, controlled inventory and arranged shipping for products shipped to big box and local retail, I know what it takes to make a successful product line. I would recommend all category managers have at least some experience with a manufacturer before becoming a commodity or category manager.
Steve:
Another way to look at this particular situation is that the sales team and the customer supply chain team in this consumer goods company don’t seem to be working together. Somebody at this consumer goods company’s North West Arkansas office is calculating the seasonal build up and writing the store orders in RetailLink to get the product to the store before the season. Usually writing those pre-season orders before the repelenishment system kicks in is a supplier team’s responsibility. The supply chain team just needs to work more closely with the sales team.
I agree with your general point though. The customer supply chain team folks need to think of what is happening to the product down to the store level and thinking like the category team helps.
Karthik
A pretty interesting set of perspectives. SC folks from a CG company in that same area were puzzled that their and the client projections were quite out of sync with sales and the gap was growing. A category manager from the same company had just reviewed some actual in-store conditions reporting from our firm, and found in-store conditions not at all in harmony with the modular. Some stores were worse than other, but on average actual conditions were 19% different from plan.
Brokers were charged with level setting the modulars on the following weeks visit and sales quickly came back in line. As Mr. Churchill used to say, “however beautiful the strategy, you should occasionally look at the results.” In this case a category manager went the extra step to check compliance with the plan.