By Mike Campbell (President and CEO of Demand Management Inc.)
Most people have become familiar with e-Commerce and the Internet by acting as shoppers in a retail store. They look at what’s available, place an order, and wait for the merchandise to arrive. What they do not appreciate is the miraculous chain of events that they have triggered. The order goes to the fulfillment operation or the distributor or the manufacturer or a combination of the above, it is picked, packed, handed to a shipper and delivered. Most of this is accomplished at the speed of light.
But what happens when the merchandise is not there to be picked? Another chain of less pleasant events is triggered. The consumer, who ordered at the speed of light, expects delivery in the same way. Bingo! A lost sale, and perhaps a customer that will not return, has been created.
The Internet is unforgiving; you don’t have to wonder any more about customer service levels-it is known immediately if you lost a sale, and there is no guessing as to availability, attractive packaging or focus group opinions. You either have it when the customer wants it or you don’t. This phenomenon is placing increased pressure on managing demand and planning up and down the supply chain.
The “front end” of e-Commerce applications, order processing, is certainly important, but many companies have failed to recognize the importance of the “back end” systems. Industry experts are raising their voices to emphasize the importance of the support systems necessary to satisfy back end requirements. The reaction is to go to the back end and fix the warehousing and delivery systems. Millions of dollars are being spent in shoring up old systems or creating new ones. This is well and good but still misses the point: somebody, somewhere has to have product.
The manufacturer, the distributor, the fulfillment house or the retailer absolutely must have product. The only way to do that efficiently is to plan for product requirements and replenishment of that product regardless of where in the supply chain it is being stored or how it is being transported. Because the margins are so slim, in the effort to open the e-Commerce market the inventory must be as efficient as possible. The magic slogan is “right stuff, right place, right time.”
To do this requires ongoing system of planning, whether done daily, weekly, or monthly. It must look at existing inventories, incoming receipts, lead times, lot sizes, customer orders, forecasted requirements, requirements from other distribution channels, and suggest a replenishment quantity and required date. This process is not the front end or the back end but the middle. Without this piece of the puzzle all that e-Commerce buys is “doing the wrong thing faster.”
With all the variables involved an automated or semi-automated solution is mandatory. That’s where the value is in the entire e-Commerce structure. The return on investment is lodged in planning and replenishment. There is ROI, of course, on the front end and the back end systems, but the largest and ongoing ROI is in one hundred percent customer service at the absolute minimum inventory investment. The value grows even larger when all the participants up and down the supply chain are involved in the planning process.
It is truly amazing that for decades companies have continued to cover their lack of planning with too much or too little inventory. Now, in the world of e-Commerce, these same companies continue to plod down the same path, ignoring the middle. This is probably because planning cannot be totally objective. There is some guesswork and some human input to the process regardless of the level of automation. Forecasting, planning and replenishment have been key to the success of most good companies in the past, and it is truer today than ever.
In fact, without an effective planning system in the middle a company can go out of business as quickly as it got into e-Commerce. Implement the front end, fix the back end, but concentrate on the middle where the dollars can make a big impact in the world of e-Commerce.