There are plenty of reasons why retailers continue to fall short of achieving perfect inventory mangement. Today I just want to focus on one barrier to better inventory management:
Retailers and Suppliers: Traditionally Misaligned Goals
Here’s the core problem: As long as suppliers and grocers have different incentives in terms of how they drive the supply chain and what they get rewarded on, their efforts to improve KPIs around inventory management are going to fall short.
Suppliers, after all, get paid on how much product they land in the warehouse, while grocers care about how much they sell to consumers. Of course incentives drive behavior, which means misaligned goals in the grocery supply chain lead to misaligned behavior. In this case that means the grocers and their suppliers are more like a “push me – pull me” than a coordinated team striving to deliver exactly the right product to each store in time to meet customer demand. Take for example the results of a 2012 supply chain survey by The Boston Group and GMA in which retailers cited out of stocks and inventory reductions as their top two reasons for collaborating with suppliers, whereas suppliers cited cost savings and sales lift
To correct the misalignment of goals and behaviors, retailers and suppliers need to start talking about the mutual benefits of inventory optimization. If both want to see sales increases, cost savings and inventory reductions, then they have to start sharing daily information about sales and stock levels with each other. Greater demand transparency drives suppliers and retailers to invest in each other’s revenue goals. Successful collaborations build trust and generate mutually beneficial inventory strategies. Such strategies enable faster reactions to shifts in customer demand and enable more accurate order planning. In the aisle, where it really counts, it means more customers will find their product when they reach for it. To get the process rolling, retailers need to implement a data management platform that makes secure sharing of sales data with supplier-partners possible.
Category: Supply Chain Management