Unless you’ve been sleeping in a cave for the past fifteen years, you already know a little bit about the benefits of supply chain technology. However in case you need a recap, I am here to help. Presented below are some of my thoughts regarding supply chain technology.
Supply chain solutions are now well-proven and readily available to virtually all companies. In the years tocome I predict that there will be an unprecedented explosion in supply chain automation throughout the United States and as well as the rest of the world. I further predict that many of those who fail to embrace supply chain technologies will ultimately be left behind.
Wal-Mart Sets the Standard for Supply Chain Automation
Over the past twenty years, we’ve seen dramatic improvements inaccounting system supply chain technology – so dramatic in fact that those who do it well are able to dominate their competition and drive them out of business. Consider Wal-Mart for example. In the early eighties, Wal-Mart placed heavy emphasis on developing and implementing tight supply chain solutions which has catapulted them not only to the top of the retail channel – but into the history books.Consider this example:
Let’s assume that you purchase a flashlight at Wal-Mart. The cash register reads the bar code price tag and reportedly within fourteen seconds, the Wal-Mart central warehouse is notified that the Wal-Mart retail store needs a new flashlight for the shelf to replenish the purchased item. Further, the manufacturer is also notified that the Wal-Mart central warehouse needsa new flashlight. Even the raw material suppliers are notified that the manufacturer now needs a little more raw materials (plastic housing, switch, light bulb, etc), and so it goes – all the way up the supply chain. (Sometimes just for fun, I like to let the Wal-Mart cashier ring up an item, then I wait fifteen seconds, then I tell the cashier that I changed my mind – I no longer want the item. Ihave no idea what impact this has on Wal-Mart’s supply chain, but it gives me a great feeling of power.)
Wal-Mart’s legendary supply chain technology has allowed them to break the three-day barrier that some economists in the eighties felt was largely unbreakable. In other words, Wal-Mart is often able to replenish items on the Wal-Mart shelf in less than three days – not from the centralwarehouse to the shelf, but from the manufacturer to the shelf. With quick and reliable 2-day turn around, Wal-Mart is able to maintain lower levels of inventory and still meet customer demand. These lower inventory levels result in either a reduced floor plan with lower carrying costs and lower interest expense – or a greater diversity of products on the store shelves. (ie: With fasterreplenishment, Wal-Mart can get away with carrying just 5 toasters instead of 10, thereby freeing up more shelf space for those George Foreman Hamburger cookers.)
Additionally, because Wal-Mart is better able to order inventory on demand, the company is in a better position to meet customer demand. Today’s fads (pet rocks, crazy bones, Pokemon cards, etc) are tomorrow’s obsolete inventory. Wal-Mart’ssuperior supply chain technology allows the company to better avoid carrying an oversupply of fad items. Consider that just twenty years ago, J C Penny’s was ordering goods 90 days ahead of arrival, making the ordering process mostly guess work trying to determine if a particular leisure suit would still be in style by the time it hit the shelves. This was such a big problem that an entire industryemerged to address this problem. Companies such as T. J. Max emerged to take obsolete inventory off the hands of companies that over-ordered and move it through deeply discounted outlets.
To fully appreciate the benefits Wal-Mart reaps from its’ superior supply chain solution, consider the traditional labor and paper approach, which is still employed by millions on companies today. Without and...