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Driving the business
03.06.2021

Automated joint planning of retail purchase with suppliers

Do you recall retailers selling products that set to expire? This approach is much less common today.  Ever wonder why? This is because major retail networks have coordinated efforts with suppliers and figured out how to predict the amount of food that will be sold. That means no excessive stock, so no need to get rid of it. But this is just one side of the coin, albeit the most noticable one. In fact, there are even more benefits to joint planning.
 

What are the benefits?

The benefits of automated joint planning (AJP), along with simply collaborative planning, are parallel: better service and higher sales along with reduced losses.
  • Better service and higher sales. It reduces storage clutter no and stocks don't run dry at inopportune times. Profits increase as planned promotions reduce the number of errors. 
  • Lower losses. It releases working capital thanks to lower surpluses. It decreases the frequency of expired product writeoffs and minimizes the amount of leftover goods.  It also reduces profit losses due to undersupply. This reduces losses resulting from inaccurately formulated orders and and improves planning thanks to the specifics of logistics.

Joint planning technologies

The traditional approach to procurement implies that a retailer orders goods from the supplier at his/her own discretion, and that is it. This method is not very effective. The supplier may simply not have a product, while demand could rise or fall for one reason or another, causing over- or understocking. Joint planning technologies like VMI (vendor-managed inventory) and CMI (co-managed inventory) work in contrast to this technique. 
 
According to the VMI concept, a customer continuously exchanges information with the supplier by reporting various types of data to it, including actual sales per stock, promotions and sales plans, new stores openings, etc. This information helps the supplier plan client stocks more rationally. The VMI techhnology can be applied in several ways:
  1. The client sets the required stock level, so the supplier can take regular steps to keep the stock at this level. This approach is largely outdated and works only in specific cases when there is a stable sales schedule, for example, with groceries or office supplies.
  2. Consignment In this process, the supplier entrusts the customer to sell his/her goods on a deferred-payment basis and is paid only after the goods have been sold.  
  3. Sharing information about the customer's storage units with the supplier.  In this case, the distributor or manufacturer can independently analyze the situation and make balanced decisions as to what goods and how many are needed to send to the customer in order to replenish his/her stocks.
  4. "Implant:" presence of the supplier's employee in the customer's territory. The representative shares fresh data with the supplier about what, in what volumes, and how often a product should be supplied.  The Magnit retail network redently introduced this method. The project proved successful and was scaled up in early 2021.
 
The CMI (co-managed inventory)is now widespread. The method allows the client, who receives fresh and accurate information about the demand for the goods, to determine delivery volumes. 
 

Building an AJP system

The automated joint planning process rests on the three pillars of data collection, data analysis, and prognosis. From there, all parties (the retailer, supplier, and the manufacturer) outline and approve their plans. 
 
The introduction of such a complex system starts with the retailer – the direct owner of the data required for analysis. Other parties come in second.
 
The most important component of an accurate prognosis is the integral element of AJP. This is achieved through machine learning and with the help of mathematical modeling. Artificial intelligence can help select optimal models, identify trends, and continuously improve the accuracy of prognoses. 
 
Apart from regular sales, it is necessary to consider factors like promotions, new releases, block lists (for products being removed from sale), price changes, major single orders, as well as trading/marketing campaigns. An IT system identifies patterns, which are then applied to generate long-term forecasts.
 
A retailer's implementation of an AJP project can help them move on to the next stage, that is, building a joint planning system. Suppliers and manufacturers gain access to forecasts, refine their capabilities and control the process.
 
Today, there are a number of systems, that help automate the joint planning process in retail. For example, Novo Forecast Enterprise not only helps make accurate forecasts, but also helps suppliers and manufacturers interact effectively.  The results of implementing these solutions are consistently positive. Their everyday use in retail is nothing more than a matter of time.
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