Stock cuts lead to supply chaos

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Related tags: Supply chain, Supply chain management

Stock cuts lead to supply chaos
The latest efforts by retailers to cut lead-times, inventory and infrastructure investment are headed towards perdition rather than supply chain...

The latest efforts by retailers to cut lead-times, inventory and infrastructure investment are headed towards perdition rather than supply chain utopia.

You might ask why the major retailers are carrying about 20% more ambient stock than lean supply chain theory dictates? There have been two primary reasons over time: historical inertia and operational and commercial practicality.

When retailers fixed their regional distribution centre (RDC) networks 30 years' ago, there was no substitute for excessive stockholding. However, that is no longer necessary.

Retailing creates many lean supply chain headaches. Consumer shopping habits still focus on the weekend. The more you take stock out of the retailer supply chain, the more closely you have to gear RDC labour and vehicle resources to that consumer demand variation. Not only does that cause labour scheduling problems in RDCs but it also places the RDC goods inwards process under periods of stress caused by daily and seasonal volume variations and increasingly smaller orders.

Retailers 'bought' inflexibility many years ago by agreeing to order in economic units such as full pallets and full trucks to get the lowest prices. While they now want to pass this inflexibility back to their suppliers at no cost to themselves, most suppliers are too smart to allow this.

There are two solutions to the retailers' dilemma: the use of primary consolidation centres (PCCs) to alleviate inbound congestion; or a drop in RDC service levels to store and more gaps on shelves.

A fall in on-shelf availability is less acceptable than inefficient RDCs. PCCs will be refused by most large suppliers because they force suppliers to pay for the retailer's problem. That leads to the inevitable conclusion: don't take the stock out of RDCs in the first place!

So, keep a careful eye on Asda RDC service levels and on-shelf availability over the coming 12 months as the retailer pursues its stockless initiative!

Tim Knowles​is partner at supply chain consultancy TKA

Related topics: Supply Chain, IT, Services

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