“You are rushing to the train station. You are late – if only you had ordered online for delivery this morning, but you forgot… plus you have to order 24 hours in advance. Suddenly, you see the symbol of freshness and hasten in its direction – five minutes until the train leaves. Dreaming of a fresh energizer you enter the store. You opt for coffee and pre-made fruit salad plus sweets for later. The sweets are a great random purchase. You wonder what you were charged, but the thought is quickly replaced with a satisfied smile on your way back to the track.”
Taking a closer look at this scenario you can see that the customer is completely controlled by a precisely adjusted assortment portfolio and demand forecast. Without thinking about his specific demand, the customer is controlled by the store’s portfolio and buys random products that will be useful at a later time. Accurate demand forecasting is realized by comprehensive point of sale (POS) data, which is directly captured in the store via modern technologies.
Figure 1: Understanding customer needs
Customers are desiring variety (see figure 1) since they do not like eating the same food for breakfast all month long. Variety is a key element – especially if they have not already decided exactly what they want. However, at the end of a day, the customer is buying a product that is intended to fulfill a certain want or need. Thus, it is not only about variety but also about the right product, which has to function in the manner that the customer wants it to. It is critical to get products “right” not just the first time, but every time. But how to best plan and predict demand of goods?
Proximity is key to delivering goods fast to customers at the right place and time. In retail, having a balanced supply chain is as important as stocking the right products and hiring the right people. However, meeting demand precisely with supply is definitely the most complex task. In addition to this known challenge, multiple things have changed considerably in recent years (see figure 2) like increased customer expectations, quality and service requirements or shorter product lifecycles.
The prevailing customer era forces retailers to have exactly what customers want and be available 24/7 at minimum costs. Retailers that cannot meet these requirements in the future will have a supply chain disconnected from the customer and see a significant decrease in sales.
To counteract these risks Capgemini Consulting introduces seven enablers to establish a customer centric and demand-driven supply chain in retail (see figure 2).
Figure 2: Enabling a demand-driven supply chain
Among others, the lever Advanced Forecasting plays an important role. After successful planning of a demand-driven supply chain, the initial element to trigger fulfillment is the demand forecast. Today’s increased computing power and improved IT systems and algorithms enable advanced forecasts that allow more accurate planning than ever before. Besides IT, a high-quality data source is crucial. This means the availability of comprehensive POS data, which today is more accessible to retailers because it can be captured not only through barcode scanning at checkout, but also through online and mobile purchases.
Thus, it is easier to track past sales and project them in the future, including seasonal trends, holidays and events. This is particularly important when a retailer plans promotions. With such advanced forecasts, retailers are able to sense customers’ demand. These techniques enable companies to equip each store with the specific quantity of promoted goods that corresponds to the occurring demand. Data from customer loyalty programs can also be used to improve forecast accuracy for future planning. The use of advanced forecasts depicts the first key element in the execution process of a demand-driven supply chain, and makes it possible to steer a supply chain from the very beginning.
An implementation of Advanced Forecasting and other levers shown in figure 2 significantly depends on six success factors. These success factors lead retailers towards implementing a demand-driven concept (see figure 3). Mindset was defined as the most important success factor by retail experts. A demand-driven concept is considered successful when employees understand customers’ needs and start challenging their daily work according to demand-driven use, and ask themselves whether they act demand-driven. The existence of this mindset is the most profound requirement for a successful implementation of a demand-driven supply chain concept. Retailers need to focus on ensuring the creation of this mindset among their workforce. Positive views on benefits through functional changes, use of data and new tools should be in the center of such approaches.
Figure 3: Succeeding in a demand-driven supply chain
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