Proven Best Practices for Retail Fulfillment and Supply Chain Efficiency

# An SCM cheat sheet to ensure you are measuring what matters to optimize your bottom line.

Effective supply chain management (SCM) is the backbone of any successful retail operation and critical to driving overall business performance. Optimizing fulfillment processes is not only about meeting rising customer expectations—it’s about achieving operational excellence, reducing costs, and increasing agility in the face of inevitable disruptions. Every stage of the supply chain, from sourcing to delivery, can impact profitability, growth and customer experience, making a strong, well-managed supply chain a strategic advantage for any retailer.

We've created a comprehensive SCM cheat sheet to help build a more resilient, flexible, and efficient supply chain. This guide covers proven best practices and key metrics, providing the framework you need to improve consistency, streamline operations, and respond more effectively to changing market demands.

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# Four Areas of Focus for Retail Supply Chain

Effective supply chain management is rooted in four main areas: strategic partnerships, best practices, clear success metrics, and tactical framework. These elements are interconnected, ensuring that every aspect of your operations supports growth and customer satisfaction. By focusing on these areas, retail leaders can anchor their operations in principles that foster both consistency and flexibility, positioning their businesses for success.

1 | PARTNERSHIP PRINCIPLES

# Three Supply Chain Partnership Principles to Practice

Recognize and reinforce where and how to integrate with partners.

Strong partnerships are at the heart of successful supply chain management. Collaboration and trust between all parties ensure that everyone is aligned on goals and expectations. Here are three principles to strengthen your supply chain partnerships: 

1. Shared Risk Mindset:

Retailers must approach partnerships across the supply-value-customer chain with a shared risk mindset. This can be accomplished by leveraging frameworks such as CPFR (collaborative planning, forecasting, and replenishment) as a guide.

2. Holistic View:

Take an intentional view of both vertical and virtual integrations with partners.

• Vertical integration focuses on the sharing of data, systems, and processes under the same organization.
• Virtual integration engages members of the supply chain to integrate their systems through electronic data interchange (EDI) so that they can share forecasts and target information and collectively respond to adjustments in expectations and market performance.

3. Rules of Engagement:

Understand your partner’s needs and determine the rules of engagement. To further mitigate risk, outline an engagement model that specifies expectations and guardrails to proactively diffuse friction when things don’t execute according to expectations. For example:

• Purchase Orders (POs) are created so that your suppliers can ship.
• Establish, monitor, and adhere to lead times.
• Generate clear standard operating procedures (SOPs) and maintain them in an accessible location.
• Align on measures that drive shared accountability (For example, if an order arrives late, is there a discount the retailer will receive to compensate for lost sales?).

2 | BEST PRACTICES

# Supply Chain Management Best Practices

Apply clear guidelines to ensure the application of partnership principles and drive better outcomes.

Applying best practices in SCM not only reduces costs and improves operational efficiency, but also enhances customer satisfaction. These practices ensure that partnership principles are effectively implemented, driving better outcomes across the board. Here are six areas to focus on applying best practices to drive improvements:

1. System and Process Agility
   Through system integrations, automated order fulfillment and processing, and optimized pick path planning in the warehouse, retailers can ensure or improve operational efficiency in labor, inventory, fulfillment, and shipping.
2. Risk Resiliency
   Develop a diverse set of supplier relationships that are willing to engage in problem-solving conversations that focus on replenishment and economic order quantity (EOQ) strategies.
3. Cost Sensitivity
   Establish a shared understanding of the cost drivers on both upstream and downstream distribution. Ordering higher quantities of inventory may be more cost-effective for the supplier. Therefore, as a retailer, having visibility into supplier volume thresholds can create opportunities for discount negotiations and inform trade-off decisions related to inventory planning and procurement.
4. Data Transparency
   Prioritize the interoperability of your systems and data network from your point of sale (POS) system to vendor management inventory (VMI).
5. Collaborative Planning
   Revisit how you share forecasts, capacity, and takeaways both internally and with external partners. Sharing key non-proprietary information with suppliers can build trust and streamline partnerships while internally engaging in cross-functional collaborative planning. This often means bringing together key stakeholders across product flow from upstream purchasing to downstream allocations.
6. Information Sharing
   Increase product sell-through by giving suppliers the detail they need to make key decisions, providing visibility into insights beyond the data. For example, customer feedback on the cut or fit of a clothing item. This will help suppliers better predict trends and potentially adjust how they source their product.

3 | MEASURING SUCCESS

# Key Supply Chain Management Metrics to Use to Measure Success

Focusing on measuring consistency to increase your supply chain flexibility.

To unlock end-to-end operational success, it's vital to focus on metrics that signal organizational consistency and flexibility. These measures are essential for mitigating risks, ensuring continuity, and maintaining profitability amid potential disruptions:

1. Measurement #1: Fill Rate
   1. How it is calculated: Total percent of the order quantity that is filled.
   2. Scenario: A retailer requested 100 units, and only 80 were delivered. The delivery in question has an 80% fill rate.
   3. Who and how it is used: Retailers and manufacturers utilize the fill rate to gauge the consistency and volume at which orders are filled.
2. On Time Percent
   1. How it is calculated: Calculate the observed fill rate within a specified time window.
   2. Scenario: A customer requested 100 units, but 0 units were delivered the week it was due. The on-time percentage for this delivery is 0%. If the delivery was late, and the customer received 100 units the following week, this would be a 100% fill rate.
      1. Nuance 1: Measurements can occur at several points in the supply chain.
   3. Who and how it is used: Retailers monitor their on-time percent to ensure two things: they are not receiving products early, incurring additional storage costs, and they are not receiving products late, leaving room for supply issues and lost sales.
3. On Time In Full (OTIF)
   1. How it is calculated: Total quantity received in the time window divided by the total quantity ordered.
   2. Scenario: A customer will consider the delivery as received on time and in full if the delivery is received one day after or four days before the delivery date.
      1. Nuance 1: This calculation can be nuanced with the frequency of data updates (i.e., daily, hourly, minute, and can allow for more specific windows to be observed)
      2. Nuance 2: This calculation can be nuanced with the final receipt details.
   3. Who and how it is used: Retailers use this metric to further define operational efficiency as it speaks to a combination of both the fill rate and the on-time rate.
4. Fulfillment Rate
   1. How it is calculated: The percentage of orders that you can ship from your available stock without backorders.
   2. Scenario: In one day, an organization receives 100 customer orders and can fulfill 90 of them in full. This would mean it has a 90% fulfillment rate.
   3. Who and how it is used: Tracking the fulfillment rate allows retailers to reflect on their ability to meet customer demand by the expected ship date from the distribution center and is often a leading indicator of issues in inventory management, order processing, or production delays.
5. Perfect Order Rate
   1. How it is calculated: Calculates the combination of the percent of orders delivered on time by the percent of orders completed by the percent of orders undamaged, and finally the percentage of orders with clean documentation.
   2. Scenario: Pulling together all the pieces, the perfect order rate will illustrate whether or not your organization is able to deliver the right product, in the right amount, to the right place, at the right time.
   3. Who and how it is used: Retailers often use it as a direct-to-consumer indicator, but business-to-business retailers can leverage the value of the perfect order rate to gain further insights into operational opportunities.

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While each of these measures provides critical insight into the health of the supply chain, there are continued strategic unlocks in continuing to measure the above operational indicators, including:

• Standard merchandising metrics, including weeks of supply (WOS), inventory turn, and margin.
• Comparing lead times and payment terms to weeks of supply (WOS) / inventory carrying cost.

Supply chains can further their ability to promote consistency and increase their overall flexibility through a combination of high-level measures that provide direction and detailed tactical measures that can send real-time signals.

4 | TACTICAL FRAMEWORK

# Assessing Supply Chain and Fulfillment Capabilities

Take into consideration the functional capabilities of planning systems that would be required to support key strategies and measures.

Efficiency and responsiveness are critical in today's retail environment. Regular assessments of your supply chain and fulfillment capabilities help you stay ahead of consumer demands and optimize operations. Focus on these three areas for practical activation:

1. Risk Assessments: Conduct an initial risk assessment and then recurring assessments to better understand, identify, and prioritize how to form your best practices and measures. Why: As the global marketplace evolves, impacts become interconnected, complex, and hard to predict. Taking regular stock of the risks to supply chain consistency and flexibility ensures a strategic and actionable approach. Identifying and managing supply chain risks is crucial to mitigate potential disruptions and enhance overall efficiency.
   
2. Planning Parameter Utilization:Examine the specificity of planning parameters and how they are utilized across capacity, inventory, production, purchasing, and sales forecasting to influence supply chain metrics. Why: Ensures a level of flexibility and maintains a consistent connection to operations based on the specificity of the planning parameters.
   
3. Connect Metrics and Capabilities: Retain a connection between supply-value-customer chain metrics and functional planning capabilities, including the frequency of demand updates and order cycles. Why: Connecting the functional ability to plan metrics associated with ongoing risk assessments allows an organization to map the value stream – honing in on the key operational levers that will bring the biggest success.

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# Challenges in Retail Fulfillment and Supply Chain

Retail supply chains often face challenges that can disrupt operations, affect customer satisfaction, and impact overall business performance. Managing seasonal demand fluctuations requires agile inventory management and flexible forecasting techniques to prevent both stockouts and excess inventory. Supply chain disruptions, whether caused by global events, supplier issues, or logistical bottlenecks, necessitate contingency plans and resilient networks to maintain continuity. Balancing cost and efficiency remains a constant struggle as businesses aim to optimize operations without sacrificing service quality.

Sustainability is an increasingly critical concern, as companies are pressed to reduce carbon footprints and adopt eco-friendly practices, such as sustainable packaging solutions, to comply with regulatory requirements and meet consumer expectations.

Addressing these complexities requires adherence to supply chain best practices. Rather than reacting to issues as they arise, proactive strategies such as building strong partnerships, optimizing operational efficiency, and continuously evaluating risks and performance metrics, help retailers stay ahead of potential disruptions. These practices bolster supply chain resilience and agility and position businesses to meet evolving market demands better and consistently deliver high-quality customer experiences.

# Supply Chain Consulting: 

# Maintain a Competitive Edge in the Retail Industry by Applying SCM Best Practices

Pressure on retailers to meet and exceed consumer expectations continues to evolve and become more complex. By continuing to focus on the best practices described above, as well as the metrics and functional capabilities, retailers can sharpen their competitive edge in delivering seamless consumer experiences that create lasting value.