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 / Autumn 2007 / Issue 48(originally published by Booz & Company)


Partners at the Point of Sale

The third domain involves the integration of maturing forms of information technology. Using enhanced applications and data storage, SCC tracks and analyzes POS data in real time (again, broken down by item, by store, and by day). Unlike many companies’ past IT investments, which tended to result in information silos — data trapped or warehoused in ways that made it difficult for other applications and systems to access it — SCC establishes repositories for a variety of demand signals: retail receipts, inventory and sales levels, related POS data such as pricing and display, and other external factors that influence demand (such as the day of the week, local events, and the weather). The ability to analyze such data, recognize patterns, and respond quickly will become critical.

Because these innovations are still emerging and are currently seen primarily in projects that involve single categories or trading partners, the full capabilities of SCC have not yet been realized across most consumer product categories. Nor have they been adopted across the geographies and product lines of most large-scale manufacturers and retailers. Fortunately, however, there have been enough pilots and prototypes that we now know these shelf-centered capabilities are possible, and we can see how beneficial they will be.

For example, Procter & Gamble’s “consumer-driven supply network” (CDSN) uses point-of-sale data to inform manufacturing and distribution decisions. With this network in place, P&G can monitor its promotions more easily, and it has updated its supply chain scorecard to include such measures of on-shelf performance as mean time to replenishment and shelf-level quality. As a result, out-of-stock rates have been reduced significantly in one-quarter of the company’s product categories.

Another pioneer is the Giant Eagle retail chain, which has partnered with manufacturers to develop joint metrics (based on POS data) for planning promotions, inventory, and delivery, often with dramatic reductions in out-of-stock rates. Giant Eagle recently collaborated with Kraft in a “rapid replenishment” project intended to increase the velocity of product flow between them. Elsewhere, providers like Market6 and VeriSign are demonstrating the potential for improving store-level assortment, promotion, and replenishment in individual pilot initiatives. These examples have yielded benefits to companies’ top and bottom lines, but because they are typically limited to a few participating companies or product categories, they are not yet achieving the degree of differentiation, growth, or efficiency that a fully integrated system could provide.

Getting in the Mood
It could take manufacturers and retailers, working closely together, as long as five years to bring these capabilities to scale. Fortunately, they will experience many gains along the way. The short-term results include increased volume and higher margins from better management of assortments, promotions, and customization, with improved in-stock performance on the shelf. The long-term results go further: giving companies greater capabilities for differentiating their offerings, increasing consumer loyalty and enabling above-market sales and profit growth.

To be sure, some experienced manufacturers and retailers are skeptical of the shelf-centered collaboration concept. It brings up memories of past solutions that failed to live up to their promises: collaborative planning, forecasting, and replenishment (CPFR); efficient customer response (ECR); vendor managed inventory (VMI); and others. In some cases, the projected benefits didn’t materialize because improvements were only partially or temporarily implemented. Other initiatives may have been conceptually or economically flawed, or just poorly executed. It’s reasonable for companies to ask why they should expect efforts to succeed now when similar initiatives have failed in the past.

It’s also reasonable to wonder why major retailers and manufacturers would agree to extensive cooperation with each other, instead of trying to use their proprietary data and brand cachet to gain advantage. Indeed, there are examples of manufacturers and retailers treating one another as adversaries, wrestling for control over their own portions of the value chain. Some manufacturers have aggressively introduced new products, seeking to force retailers to reallocate precious shelf space. Some retailers have tried to beat down manufacturers’ prices while imposing unique, customized, and expensive supply logistics and keeping valuable point-of-sale data to themselves.

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  1. Gerry Greenleaf, Dennis Donelon, and John Jensen, “Supply Chain Management: An Investigation of Collaboration in the Grocery Industry,” Grocery Manufacturers Association, 2003: Survey of retailers and manufacturers in the food industry reveals extent of and roadblocks to collaboration. Click here.
  2. Doug Hardman, David Messinger, and Sara Bergson, “Virtual Scale: Alliances for Leverage,” s+b, Fall 2005: How companies can use strategic alliances to build long-term capabilities in areas including manufacturing, logistics, procurement, research and development, marketing, and promotion. Click here.
  3. Maarten Jager and Steven Wheeler, “Building a Better Matchmaker,” s+b, Winter 2005: The “shelf” of an automobile dealership can sometimes be the Web site — through which carmakers, dealers, and car buyers can learn a great deal more about one another. Click here
  4. Richard Kauffeld, Matthew Egol, and Elisabeth Hartley, “Creating Value through Customization: Winning through Shelf-Centered Collaboration,” GMA Forum, September 2006: The potential of SCC as revealed through existing retailer and manufacturer customization initiatives, especially in consumer packaged goods companies. Click here.
  5. Edward Landry and Jaya Pandrangi, “Getting the Most from the ‘Feet on the Street,’” s+b, Fall 2005 : Describes how manufacturers can configure an optimal sales force mix for their particular retail channels. Click here.
  6. Melissa Master Cavanaugh and Catharine P. Taylor, eds., Moments of Choice: Collaborating at the Shelf for Profitable Growth (strategy+business Books, 2007): Lays out the components and relationships of a shelf-centered collaboration extended enterprise. To preorder copies Click here.
  7. For more articles on supply chains, sign up for s+b’s RSS feed. Click here.
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