Try this scenario on for size: While raiding the refrigerator at midnight, you discover the milk has run out. You’re not making a run to the all night convenient store in your pajamas, but if you don’t have milk in the morning, the kids will throw toasted oat cereal at you.
Wouldn’t you love to take the empty jug of milk, run the bar code on its side over a scanner attached to the refrigerator door, and wake up to fresh milk on your doorstep?
The example above reveals a new way of looking at supply chains and supply chain management—the replenishment supply chain model. It sounds farfetched now, but there are organizations in the enterprise market that are making efforts to make this type of customer service a reality.
How it begins
The replenishment model starts when the customer demand is recorded. In the example above, the customer demand for milk is recognized when the bar code is scanned. That demand is driven all the way down to the supplier who can fulfill it in the most efficient way.
“All of your demands go to your distributor who replenishes them, but then they follow on down the chain so the demand actually creates a new product. That’s what has to happen,” said Pamela Lopker, founder and president of QAD, Inc.
One key feature of the replenishment model is finding the right supplier. Criteria for suppliers may rely on which one is in closest proximity to the customer or which supplier has the correct inventory in stock. Also, in the replenishment model, the supplier may be the actual manufacturer if the factory is closer to the customer than the retail store that carries the product.
This type of supply and demand scenario, with milk on the doorstep along with the morning paper, is not going to happen anytime soon, but the idea is out there.
“I think that’s ultimately where this is going, but that’s quite far out,” said Johan Arts, the director of global marketing for QAD.
QAD is one of the companies looking at new ways to use supply chains. QAD has been developing new tools and add-on products that help optimize supply chains and create visibility of the information that resides within supply chains. “About three or four years ago, we laid out our new vision for supply chain management (SCM). We have a lot of tools that help you manage SCM within the boundaries of an enterprise,” said Arts.
It’s all about trust
The key to the replenishment model is a healthy business-to-business (B2B) relationship between all members of the chain.
“The whole B2B system of inter-relationships needs to work together for the model to work,” said Karen Peterson, an analyst at Gartner, a business technology advisor based in Stamford, CT.
B2B relies on the cooperation of partners while managing a replenishment model relies on sharing information efficiently. “Not only do you need it working together, but you need [the supply chain] to have the correct information,” said Peterson.
Trust between companies is a large opponent to opening up supply chains to every player in the chain. Sharing information involves companies divulging their customer and inventory metrics with possible competitors. The replenishment model requires that partners in the chain have access to the back-end systems of other partners. Many companies are not willing to provide all of the necessary information or the access needed to make the model work.
This flow of information—with companies working together—has been termed collaborative commerce, or c-commerce. But despite being made into a buzzword, c-commerce is not occurring very often. “What we see a lot of now is coercive commerce,” said Peterson. “In other words, there is a channel master [in the chain] telling everybody that they have to give information.”
Coercive commerce is not conducive to building trust between companies or between customers and suppliers. “Coercive commerce is forcing [supply chain partners] to provide information and then judging them on the quality of that information,” Peterson said.
Once information is available to all partners in the supply chain, it must be available in real-time. Since the replenishment model begins with a customer demand, it has to function on a real-time or semi-real-time level. A customer is not going to wait a week for a retail organization to determine if a product is in stock or if it can be shipped from the manufacturer.
Real-time connectivity to the back-end systems and inventory information of all the partners in a replenishment supply chain is essential. “The people that hold the critical data to make the replenishment model work are usually not with your company. They’re working at somebody else’s company but they need to be connected to your back office system to make this work,” said Arts.
When will it happen?
AT&T Wireless is already running a preliminary version of QAD’s replenishment supply chain software and three other pilot companies are using the technology. Other enterprise vendors, including i2.com and Oracle, are also creating supply chain technology similar to what is needed for the replenishment model.
If the trust issues are ironed out and information within a supply chain is visible to all partners, the replenishment model, as it is intended to be, will exist. Currently, according to Peterson, more “collaborative bodies” and integration marketplaces are forming, which will create new space for the model. “We are skeptical that there will be a single marketplace that’s going to be all things to all people,” she said.
QAD will also continue to enhance the current supply chain technology they offer. “We believe there is a need to conceptualize such a space. We’re building a reference specifically in this area so we can prove we are capable in delivering value in that part of the supply chain,” said Arts.
So as it stands now, the replenishment supply chain model is not mature, yet it is an idea that is already beginning to change the way supply chains will function.
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