Supply Chain Of The Future

Logistics View

In case you're wondering what the food supply chain of the future will be like, look no further than Wal-Mart. The super retailer, thanks to its super supply chain, has captured an estimated $130 billion of the $500 billion retail food business. Experts predict that Wal-Mart will represent one-third or more of the American food supply chain within the next 10 years.

While that's very impressive, it's also a little scary, considering that Wal-Mart only got into the food business 10 years ago. But the retailer has shown what a well-oiled supply chain can do. As one expert pointed out in this issue's distribution story, "Who's Winning The Supply Chain Game" [page 18], "You don't go to Wal-Mart for the shopping experience." But nobody can beat their prices.

That's because Wal-Mart has invested gazillions in information technology so that it can deliver product faster and cheaper than everybody else, using real-time information throughout its supply chain. Wal-Mart's inventory accuracy is at 96 percent, while most supermarkets are at 70 percent. Chances are that customers are going to find what they're looking for, so they'll keep coming back.

It's no secret that IT is the backbone of Wal-Mart's supply chain success, yet many retailers are reluctant to invest in technology. But as Wal-Mart has proven, no matter how nice the shopping experience is—or isn't—price, variety and availability will usually win out in the end, and there's no way to be able to provide those things without technology.

According to a presentation by A.T. Kearney at the Grocery Manufacturers Association's IS/LD conference last month, the 2010 supply chain will be driven by "point of sale" information-enabled planning. Wal-Mart is already there. In fact, the world's largest retailert is a good seven years ahead of most other supermarket retailers and is using, in varying degrees, consumer purchase information to drive its supply chain.

According to the presentation, some of the characteristics and benefits of POS-enabled planning are:

  • Planning process actively, discretely and uniquely manages each node in the supply chain;
  • Store-level demand forecasts for each SKU built off of retail POS data as a foundation;
  • Market intelligence (pricing, promotions, etc.) is collaboratively integrated into forecasts at the lowest relevant level;
  • Inventory plans are directly tied to store-level forecasts using service level- driven DRP calculations for each upstream node; and
  • Goods flow is driven from these inventory plans and is "pulled" into the store based upon consumer demand.

Wal-Mart is already reaping many of these benefits, but it's not too late for other retailers to follow suit.