Value Optimization

See what we have to say. We discuss everything supply chain.

’tis the Season to Balance Demand, Supply and Fulfillment

By Philip Franz November 28, 2016 by Kelly Kuhlman

Amazon recently announced that it is hiring 120,000 seasonal workers to support its holiday season fulfillment orders. While this is a boon for people looking for seasonal employment across the United States, adding 120,000 new employees into a complex fulfillment process is a monumental undertaking for any organization.

in-the-warehouseAmazon supply chain professionals are hiring seasonal employees based on the forecasted consumer demand for their products. While retail supply chain professionals are accustomed to increasing their inventory position ahead of the retail “golden quarter,” based upon forecasted demand, adding an additional 120,000 employees to their workforce is another indication of how dependent retailers are on the quality of their demand signals to effectively predict the need for supply and labor necessary to fill their holiday season orders.

In addition, Amazon will share its fulfillment forecast with its parcel carrier(s) to ensure that transportation needs will be met prior to Dec. 25, 2016. Without adequate transportation capacity, orders may be filled but will not arrive in customers’ homes prior to Dec. 25. Orders not received prior to Dec. 25, often result in customer returns, leading to lost revenue and additional transportation and labor costs associated with the returns process.

The Quality of the Demand Signal

The quality of the demand signal prior to and during the golden quarter is critical. Retailers continue to invest in sophisticated forecasting tools, critical data, and predictive analytics to further improve the predictive quality of the demand signal. Although it is difficult to prepare a qualitative business case to support the quality of a software tool or good master and other data, retail supply chain professionals see the result of a less-than-accurate demand signal in the form of excess inventory, poor inventory placement, greater-than-needed fulfillment labor and transportation costs. These costs can be easily calculated.

The Use of Demand Shaping

Striving to improve the demand signal is key to effective demand, supply, and fulfillment. The demand signal is dynamic and needs to be monitored and enhanced on a continuous basis. In the case of retailers, daily item forecast reviews are the typical cadence. Exception tolerance monitoring is key to understanding which items have a significant change in their demand signal and result in changes. Because of price elasticity, many retailers will lower prices on items with greater-than-expected supply to increase their demand and therefore balance their supply. Manufacturers that sell directly to consumers also use demand shaping to balance the demand and supply of both component parts and finished goods in their supply chains. Balancing demand, supply, and fulfillment is critical to both top-line revenue and bottom-line costs.

What We See

At Reveal, our consultants work with manufacturers and distributors to optimize their use of inventory to improve their profitability. Although many companies are not the size and complexity of Amazon, improving the balance between demand, supply and fulfillment are critical to their business success. The most profitable companies have an effective and efficient supply chain capable of adapting to ever-changing customer expectations and needs.

Tags: , , , , ,
30 West Diehl Road
Naperville, IL 60563
Send us mail
info@revealvalue.com
Schedule a Call
+1.630.571.1730