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Sourcing Journal / December 21, 2018

Retail’s Holy Grail: The Perfect Alignment of Supply and Demand

Digitization is the new hot topic in supply chains today, and with good reason. As fashion continues to move faster and faster, companies can’t afford for their supply chains to be disconnected, siloed and slow-moving. Digital supply chains are essential in helping information flow seamlessly through the supply chain, so that retailers and fashion brands can react to constantly changing demand signals and make quick, data-driven decisions to align supply and demand.

But what exactly is a digital supply chain? After all, brands and retailers have used digital tools such as demand forecasting software, ERP, PLM, supply chain management and a host of other systems for years. However, these systems operate independently, and there’s no central source for getting all of the information executives need. In manufacturing terms, this is Industry 3.0, “the automation of single machines and processes,” according to PwC’s 2018 Global Digital Operations Study. And it doesn’t solve the core problem of providing a single, connected system for all supply chain processes.

One supply chain executive recently said his company must access multiple portals to get all the data it needs throughout the supply chain. Vendors must be trained to use a host of systems, too. He said, “I need a single point of entry” for all these disparate systems–and that’s exactly what a digital supply chain provides.

Why digital supply chains are key

With a digital supply chain, users only have to access a single point of entry to get information from all the various systems in the supply chain–demand forecasting, inventory optimization, PLM, supply chain management, ERP, materials testing, quality management, logistics and more–without ripping and replacing existing systems.

As Darioush Nikpour, founder and president of Stycheco, explains, “The exciting part about a digital supply chain is that it’s not about replacing ERP, PLM or other business applications. It’s about democratizing that data across the value chain, so that we can go from concept to commercialization without going through the expense and pain of replacing legacy applications.”

A digital supply chain does this by centralizing and sharing information from all of these disparate systems and processes, providing a unified, single-sign on platform that can access all the data within the supply chain from a single access point. This is an essential part of Industry 4.0, which “encompasses end-to-end digitization and data integration of the value chain,” to use PwC’s terminology.

As one supply chain executive said, “a digital supply chain lays over other systems like a blanket and uses the information in those systems.” Moreover, it orchestrates all that information, forming a “connected enterprise” that breaks down silos and enables faster decision-making by bringing together planning, design, sourcing, production, logistics and replenishment into a single enterprise. When events occur that impact the supply chain–such as changes in demand signals, fashion trends, weather patterns, sales data, production delays and many other variables–it doesn’t take days or weeks for this information to ripple through the supply chain. Instead, users are alerted and can react immediately.

Aligning supply and demand

A digital supply chain can be the key to achieving retail’s holy grail: the perfect alignment of supply and demand, a goal that continues to be elusive.

According to a 2018 survey and report from Deloitte and MHI, companies across all industries can’t respond fast enough to customer demands. Seventy-percent of survey respondents rated customer demands on the supply chain as “extremely challenging” or “very challenging,” which for fashion companies can mean sharp changes in demand, sudden shifts in fashion trends, and other factors.

In order to better align supply and demand, companies must continually plan and execute, then re-plan and re-execute as demand signals change. Planning is never a static, “set it and forget it” activity; because demand signals are constantly changing, retailers and brands must continually adjust their plans.

PwC uses the term “digital champions” to refer to companies that have mastered digitization and embraced the principles of Industry 4.0, part of which includes “collaboration and full transparency across the entire value chain…(This) is especially valuable for planning and execution because it fosters takt time: the pacing of activity so that it continuously aligns supply chain execution (including production and replenishment) with real-time customer demand signals.”

The closer companies can get to embracing takt time, the better they are able to balance demand and supply. That’s why digital supply chains are so critical. Retailers must be able to centralize, orchestrate and share information throughout their supply chain, from planning to replenishment, in order to re-plan and re-execute when demand changes, and this is impossible with linear, slow-moving supply chains.

Digital supply chains are essential for reducing lead times and better aligning supply and demand now. They are also a prerequisite for cognitive or autonomous supply chains, where many routine decisions on allocation, shipping, optimizing inventory levels, etc. can be made by AI and machine learning-based systems–further improving decision-making and helping retailers achieve the holy grail of a near-perfect balance of supply and demand.