Retail Fulfillment and Supply Chain Management Best Practices

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

In 2023, for retailers to maintain momentum, they must be confident that their supply chain management has the agility and risk resilience to recognize, respond to, and quickly transform to deliver on its promises across the supply-value-customer chain: consumers, manufacturing, and supply chain partners. 

By the end of 2023, 50% of supply chain organizations will have rebalanced resiliency efforts to reflect the realities of inflation and necessary efficiency to recover 2 percentage points of margin, according to Supply Chain Digest.

This state of perpetual reinvention requires supply chain leaders to anchor in a clear set of principles, best practices, success measures, and tactical framework to drive consistency and increase flexibility. If you are leading supply chain, planning, or scheduling, this toolkit provides you with a cheat sheet to reset and mature operational excellence.

Related Content: 4 Important Trends That Will Shape Retail in 2023

# Four Areas of Focus for Retail Supply Chain

1 | PARTNERSHIP PRINCIPLES

# Three Supply Chain Partnership Principles to Practice

Recognize and reinforce where and how to integrate with partners.

Collaboration within the supply chain is critical to success for both retailers and consumers. Here are three keys 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:
   • 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.

By applying clear guidelines and best practices, retailers can ensure the application of partnership principles, which will ultimately drive better outcomes. Here are six areas to focus on applying best practices to drive improvements.

1. System and Process Agility: Retailers can ensure or improve operational efficiency in labor, inventory, fulfillment, and shipping through system integrations, automated order fulfillment and processing, and optimized pick path planning in the warehouse.
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. For example, ordering higher quantities of inventory may be more cost effective for the supplier, therefore, as a retailer, having visibility to supplier volume thresholds will establish opportunities for potential discount conversations or further inform trade-off decisions for how companies plan for and buy inventory.
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 products.

3 | MEASURING SUCCESS

# Key Supply Chain Management Metrics to Use to Measure Success

Focusing on measuring consistency to increase your supply chain flexibility.

Supply chain management has a wealth of measures. However, focusing on measures that signal organizational consistency around timing allows for greater volume flexibility. To unlock end-to-end operational success, we recommend a sharp focus on the following five key measures.

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 and 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 and incurring additional storage costs and they are not receiving products late and 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 fill 90 of them in full. This would mean they have 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.

Related Content: The Healthy Tension Model for Retail Demand Planning Success

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

# What Supply Chain and Fulfillment Capabilities to Assess

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

The tactical framework brings together the process and metrics we’ve discussed up to this point. Here are three keys to 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.
   
   
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.

Related Content: 5 Best Practices for Every Stage of Your Inventory Planning Transformation

# Supply Chain Consulting: Maintain a Competitive Edge in the Retail Industry by Applying SCM Best Practices 

Pressure for retailers to meet and exceed consumer expectations continues to evolve and increase in complexity. With a continued focus on the partnership principles, the best practices described above, as well as the metrics and functional capabilities, retailers will sharpen their competitive edge in delivering seamless consumer experiences.