Capacity and Flow Planning Drives Efficient Replenishment for Retailers

As a result of this VUCA environment, retailers constantly experience near-term network flow volatility due to promotion calendars, holidays, weather impacts, store resets, supply disruptions, and large assortment updates.
Capacity and Flow Planning Drives Efficient Replenishment for Retailers

Indian retailers have constantly faced the conundrum of responding flexibly to the erratic changes in demand and supply patterns during the COVID-19 pandemic. Furthermore, retailers that failed to adopt omnichannel fulfillment have struggled to respond. These challenges have made the retail supply chains a textbook case of a system subjected to VUCA – Volatility, Uncertainty, Complexity, and Ambiguity. At the same time, there has never been a greater need to focus on operational execution and commercial decision-making to drive down costs, while delivering the highest possible customer service.

As a result of this VUCA environment, retailers constantly experience near-term network flow volatility due to promotion calendars, holidays, weather impacts, store resets, supply disruptions, and large assortment updates. Lack of retail space is the biggest challenge in India and as such, improving on-shelf availability is a constant struggle, and capacity planning is largely managed with manual spreadsheet-driven processes. Demand needs to be adjusted across stores and regions with changing allocations or pulling in replenishments when storage or transportation capacity is available. 

Flow planning at various levels of granularity is becoming the best practice, to align various fulfillment capacities with volatile demand patterns, across categories and regions. The key driver to optimal flow plans is a logistics forecast, which can be either derived from past shipment patterns or SKU /category level demand forecasts at the store or store cluster level. Retailers are resorting to flow plans that look out into the future at varying intervals (90-day, 21-day, daily) to align capacity with demands to improve efficiency and maximize profitability.

90 Days Flow Plan

Retailers are challenged with moving goods efficiently while at the same time reacting to merchant asks and the need to evaluate levers such as adjusting demands, adding another shift at the DC, or accessing a temporary labor pool, or even flex transportation capacity. The logistic industry in India has been instrumental in ensuring the flow of goods and as such the creation of a logistics forecast is critical - by taking the prior year data and applying sophisticated Machine Learning (ML) algorithms enriched with drivers such as future events at the stores. Scenario planning can drive plans for DC labor, store receiving labor, DC storage capacity (ambient, cold, frozen), and outbound truck capacity.

21 Days Flow Plan

Around three weeks out, when typically real demand comes in by orders at the item-store level, the planning teams are challenged in understanding if they are over/ understaffed and if there are enough dock doors, labor, and material handling capacity to meet the demand. A weekly plan at the item/store/day granularity can drive tactical capacity planning and making informed decisions when limitations cannot guarantee on-shelf availability of all items. Various scenarios are run to understand the cost implications to service demand, so that costly overtime and flex transportation capacity is managed to ensure margin targets. A key input into this decision-making is demand prioritization rules set up by the merchant teams, that help smooth the flow of items into the stores and kept the items fresh, and reduce overstocks and their costly consequences like markdowns or obsolescence.

Daily Flow Plan 

There is a need to plan every day for the next day, considering near-term capacity restrictions. The day plan (executed once a day) is driven off the confirmed store order pickups and orders can be blocked based on capacity limitations at the DC, transportation lane, or store. This daily flow prioritization can prevent backlogs that build up and cause havoc in subsequent days. 

The benefits of flow planning at all time periods from mid-term to short-term to daily intervals are numerous: 
-    Optimal DC labor plans, inbound/ outbound transportation plans, store receiving labor plans, and DC storage plans
-    Lower transportation costs
-    Lower labor costs
-    Lower in-store out of stocks

Flow Planning Can Deliver Ongoing Efficiencies in Indian Retail Fulfilment 

Retailers must have a systematic process to address challenges due to network flow volatility that causes bottlenecks due to the availability of storage capacity, labor, and transportation. The logistics teams are challenged with moving goods at the lowest total delivered costs while at the same time being responsive to merchandising requirements. They needed to evaluate levers such as pulling in demands, adding another shift at the DC, accessing a temporary labor pool, or using flex transportation or storage capacity. 

The emerging best practice that is a game-changer for flow planning, is the creation of a model of the retail supply chain, which is commonly referred to as a digital twin, with granular product flows, costs, and capacities, as well as policies like safety stocks, lot sizes and replenishment intervals. Scenarios can be run on this digital twin, to make product flow decisions weeks to months in advance to improve service levels, while containing the total landed costs. 

The planning organization may have the best-laid plans, but when it comes time to execute, as the 19th-century Prussian field marshal Helmuth von Moltke said of the uncertainty experienced in battle – ‘no plan survives first contact with the enemy’. To tame the enemy - VUCA, flow planning with the help of a digital twin can empower supply chain planners to make effective decisions that deliver efficiency with superior customer service.
 

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