The term order fulfilment is understood to mean the complete process from point of sales inquiry to delivery of a product to the customer, but inventory planning, replenishment and forecasting become major challenges for companies, because the marketplace becomes more complex and demand is fluctuating. Regarding to the retail industry, the fluctuating demand of customers often results in tonnes of wasted food as supermarkets fail to forecast the actual demand of their customers. The production time can vary significantly from product to product, because it depends on various factors and external events, such as weather and holidays and the changing in customer behaviour. Let us take a look at what companies are currently doing to tackle these challenges.
The most common models are built to react on actions. This means that the product is often designed and built to customer specifications. Discrepancy between the sales forecast and the actual demand (forecast error) is frequently the consequence. As mentioned in the introduction, long term problems as food wastage are the results of this bad planning.
The digital transformation is often associated with positive impacts on various industries, but multichannel supply chains also means that different channels using different processes, databases and systems. This creates fragmented operations, making it hard to forecast demand of customers and clarifies that another model is essential for companies across various industries to compete with Amazon.
The goal for retailers should be to shift from a reactive approach to inventory planning, replenishment and forecasting to a proactive one. This enables retailers a more accurate forecasting better understanding of the customer’s needs. A reactive model means that retailers only react on changes in consumer behaviour and waste time, products and money.
Examples of how companies are currently implementing proactive models in their strategy are rare, despite the cultural change in our society and the fluctuating demand and trust in retailers. Amazon is the best example to show how companies are implementing forecasting methods extremely successfully. Amazon knows what, where and when customers want to buy and are oriented towards their needs.
Hal Mather, a successful author and manufacturing expert, suggested the improvement of the forecasting accuracy, provision of flexibility and the building of a process to recognise forecasting errors and quickly correct production planning. Now blockchain technology offers a way to connect these disparate parts and the reasons are obvious. Data is available in real time and this helps businesses to improve their inventory planning and replenishment in the supply chain.
The adoption of blockchain in the supply chain is now about 5% but is projected to rise to 54% over the next five years and the benefits are obvious, as companies can thereby optimise manufacturing planning and forecasting based on demand, rather than simply react to inventory stockouts.
Companies can ensure that they always have the right types of SKUs and amount of stock in their warehouses and there are much more benefits for companies like Amazon. As mentioned before, a proactive model has environmental benefits for all of us, because less food is be thrown away, but wasted food is also an indicator of bad planning and results in goods that can’t be sold to target customers. From a long-term perspective, bad inventory planning causes a customer fleeing, as customers can’t find products they want to buy.
When it comes to inventory planning and replenishment, reactive order fulfilment is a widely used model. This means that companies are always one step behind the curve. Demand rises, so they increase production and output. Items run out of stock, so they send more goods to fulfilment centres. Help is approaching: A proactive model enables companies the possibilities to connect the process chains and improve the supply chain management and the long-term benefits are obvious, as this enables retailers to tackle the major problem of food wastage, improve their business with a more effective inventory management and build a better relationship to their customers with focussing on their needs.