story by Kim Souza
Editor’s note: The Supply Side section of The City Wire focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by The City Wire and sponsored by Propak Logistics.
Replenishment is key to driving improved sales for suppliers of Wal-Mart Stores Inc., and while the retail giant has invested heavily in a new system for replenishment and inventory control, insiders say a broad rollout is still likely more than a year away.
Wal-Mart did not return a request for comment on its global replenishment system (GRS) that is now in test mode with a few larger suppliers who say there are still bugs to be worked out. GRS will eventually replace a system known as Inforem, which was created by IBM and last updated in 2007. Inforem uses an upward forecast modeling system, the complete opposite from the downward forecasting model used in GRS.
Duncan Mac Naughton, chief merchandising officer for Walmart U.S., told investors in April 2012 that the retailer was working on the new global replenishment system which is believed to be a better forecasting engine.
“It will allow us to be more real-time with our supplier on what our expectations and our needs are and we will deliver better real-time inventory to our stores,” Mac Naughton said at the investor conference.
He said minimizing inventory at the store level, improving out-of-stocks with better forecasting is an end-to-end commitment using technology to drive better performance in the store. Mac Naughton said then that on-shelf availability would be a big initiative in 2013.
It remains so in 2014 as Wal-Mart has been beaten up by media reports of empty shelves, while also recording rising inventories throughout 2013 at the same time U.S. comp sales have dipped lower. But that has not pushed the retailer to rush out the new replenishment system
Approaching a half trillion dollars in annual revenue, the retailer is often the largest customer for many suppliers, so when Wal-Mart tweaks or makes a major change to one of its operating systems, suppliers have cause for concern.
“For all of the bad you hear about Wal-Mart most people fail realize that this mass retailer is one of the most efficient retailers they can do business with. Retail Link and the supply chain system inside Retail Link review the need for potential orders on every item in every store, every day,” said Matt Walters, senior development of client development for Atlas Technology. Walters also formerly worked at Wal-Mart.
He said once an organization has that logistics process within retail link dialed in, replenishment orders from Wal-Mart become regular and in most cases consistent (less seasonality and/or promotions).
Jami Dennis, a private consultant to suppliers, said replenishment is one area where she finds many suppliers have concerns. She said the primary issue is that suppliers don’t often understand their ownership of the process.
“Many do not know who their replenishment manager is and/or have limited communications with them. The don’t know that they should be watching store-specific activity and making recommendations. We advise suppliers to ask for a minimum of a quarterly call and in some cases (if there are issues) weekly strategy calls,” Dennis said.
Walters agreed that suppliers must stay on top of the point-of-sale trends, but he said changing forecasts can be an uphill battle, which is why communication is so important. He said some suppliers fall short because of lack of internal communication.
“Sales may not always want to hear about forecast updates or changes so pushing updates internally can sometimes be the biggest hurdle,” Walters added.
Besides a supplier getting their foot in the door, understanding the complexities of the replenishment process is one of the biggest hurdles many will face, according to Dennis.
“A sales team may sell an item into Wal-Mart but the replenishment team has to sell it for the remainder of that item’s life span. Suppliers could be missing out on hundreds of thousands to even millions of dollars in missed shipments yearly because of a simple lack of knowledge about the different functions and tools that are available to better promote and manage items,” Dennis said.
As Wal-Mart works to convert suppliers to the global replenishment system, Walters and Dennis said having a forecast at 90% or better accuracy is key a supplier’s success.
Even with the latest technology, Dennis said items are being replenished by people, and there are times when even the best replenishment managers need guidance and support to highlight improvement opportunities and avoid mistakes that can go unnoticed because of an immense work load.
The theme for GRS is “just in time inventory.” Wal-Mart’s aspirations after converting a supplier to GRS is that their sales and in-stocks increase, while their inventory decreases. Insiders said the early conversions have been frightful for some suppliers with lost shipments leading to high out-of-stocks at the distribution center and store because the initial cutover process was not managed correctly.
There are very few experts on GRS subject matter as the system is in trial mode and Wal-Mart’s own replenishment managers are also still learning the system. Dennis said working through this transition with the replenishment manager and making sure all the different cut-over steps are uploaded and established correctly on the front end will be the deciding factor of a supplier’s conversion success.
When a supplier is given little notice of the transition, Dennis said the best thing a supplier can do is review their “Item/DC” and “Item/Store” forecast variances and offer their recommendation for a new forecast for each variance.
She recommends that suppliers complete a lead time audit, and make sure an accurate order increment and minimum order quantity is in place for each “Item/DC” combo if the supplier stores product at the distribution center. The lead time audit is a validation of processing and transit time from supplier ship point to each Wal-Mart distribution center.
Dennis said suppliers who want to make an easy transition to GRS should make sure they have an open line of communication with their replenishment manager and a firm grasp of the new tighter forecast variance expectations.